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Numbers that Actually Matter. Finding Your North Star

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This presentation uncovers a common misconception in fast growing SaaS businesses. Revenue reigns over everything. We talk about what really matters in building a sustainable SaaS company.

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Numbers that Actually Matter. Finding Your North Star

  1. 1. Numbers That Actually Matter
  2. 2. SaaStr 2017 Numbers That Actually Matter Mamoon Hamid Co-Founder + General Partner 02.08.17
  3. 3. The Dream
  4. 4. Not-So-Fictional SaaS Company $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
  5. 5. MRR Growth Accounting in Year 1 -$10,000 -$5,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 New Expansion Contraction Churned
  6. 6. 0.4 4.0 40.0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Quick Ratio in Year 1
  7. 7. 0.5 5.0 50.0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 New MRR + Expansion MRR Churned MRR + Contraction MRR Quick Ratio (QR) = QR > 4 👍
  8. 8. -8% -6% -4% -2% 0% 2% 4% 6% 8% Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Gross Churn Net Churn Churn – Year 1
  9. 9. Not-so-Fictional SaaS Co. – Year 1 Recap • From almost zero to $1.1M in ARR • Mostly organic MRR growth • Quick Ratio hovering around 4 • Negative Churn 👍 👍 👍 👍 Series A Likelihood > 90%
  10. 10. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
  11. 11. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
  12. 12. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 🔥
  13. 13. Not-So-Fictional SaaS Company – Year 1 to 3 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 💰💰💰
  14. 14. MRR Growth Accounting – Year 1-3 -$60,000 -$40,000 -$20,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 New Expansion Contraction Churned
  15. 15. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Quick Ratio in Year 1 to 3 🆘
  16. 16. -8% -6% -4% -2% 0% 2% 4% 6% 8% Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Gross Churn Net Churn Churn – Year 1 to 3
  17. 17. Not-so-Fictional SaaS Co. – Year 1 to 3 Recap • From $1.1M to $9.4M • But it took 20 sales people • Expansion revenue offset by churned revenue • Quick Ratio hovering around 2 • High Gross Churn & Positive Net Churn • $1M/month of burn! 👍 Vanity Metrics Suggest Series B Likelihood > 90% Underlying Metrics Suggest 👎 👎 👎 👎 🆘 👎 👎
  18. 18. How do we make sense of this? • Product-market fit happens one customer at a time one month at a time. • Mostly ignored any product-market fit metrics • Churn/Expansion/Contraction MRR is a lagging indicator of product-market fit • How could you have seen it? By focusing on a leading indicator of the MRR decision...
  19. 19. Find your North Star • MRR is the price that the customer pays, the North Star is the value that they get. • Your North Star measures the value you deliver!
  20. 20. North Star Metric: For example - DAU/MAU What Company is this? 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
  21. 21. North Star Metric: Facebook DAU/MAU = 55% (until 2012) 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
  22. 22. North Star Metric: DAU/MAU for Slack 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35 ! !
  23. 23. North Star Metric – Wait a Second… What’s the Orange Line? 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35 ! !
  24. 24. North Star Metric – DAU/MAU Front: The Shared Inbox App 25% 30% 35% 40% 45% 50% 55% 60% 65% M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35 ! !
  25. 25. What’s a good or bad North Star? • Bad: Mostly measuring price paid as opposed to value delivered • MRR, paid seats • Good: Measures value delivered in bulk • MAU, DAU, messages sent • Better: Unquestionably indicates Product Market fit has been reached with the customer • Number of users with L28>=16 • Messages sent w/in 30 days of signup
  26. 26. # of file actions DAU/MAU # of Customer Interactions WAU/MAU Pitches Viewed DAU/MAU Hires made WAU/MAU User App - Pairs Apps signed onto per DAU Apps monitored per user MAUs Other North Star Metrics
  27. 27. Value Delivered > Price Paid (MRR) • Understand your MRR growth accounting • Even though it’s likely a lagging indicator • Focus on value delivered, not price paid or the efficiency of the sales machine that got them to pay • Find your North Star
  28. 28. So What Happened to Not-So- Fictional SaaS Co. Over Time?
  29. 29. ARR – Over 6 Years $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16
  30. 30. ARR – Over 6 Years $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16
  31. 31. ARR – Over 6 Years $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 $45,000,000 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16
  32. 32. MRR Growth Accounting – Over 6 Years -$200,000 -$100,000 $0 $100,000 $200,000 $300,000 $400,000 New Expansion Contraction Churned
  33. 33. -7% -5% -3% -1% 1% 3% 5% 7% Date Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Gross Churn Net Churn Churn – Over 6 Years
  34. 34. 0.4 4.0 40.0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Quick Ratio– Over 6 Years
  35. 35. What does this mean? • New Revenue barely makes up for your churned revenue • Lack of new funding require sacrifices - product development gets starved • Less competitive product means it becomes harder to add new customers and more churn • Hard to retain talent • And you enter a vicious cycle…

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