Just came across an excellent presentation by Philippe Botteri and Byron Deeter from Bessemer Venture Partners called the ‘Ten Laws of Being SaaSy‘ . It summarises the key principles of getting a successful Software-as-a-Service business off the ground (and to IPO). These guys should know. Bessemer is one of the most successful SaaS investors out there (VeriSign, Postini, Skype and lots more).
The Big Ten:
- The key monthly business metrics are CMRR (Committed Monthly Recurring Revenue), Churn, and Cash flow – The “Bookings” metric is for suckers.
- Customer Acquisition Cost and Customer LifeTime Value are the best indicators of long term value creation.
- Tune before you scale: it takes at least $300k MRR to climb the sales learning curve. Stop at three sales reps until at least two of them are making $100K MRR quotas.
- Separate your “hunters” and “farmers” and pay them all on CMRR growth.
- Focus your business development efforts on business services channels - SaaS is a whole new ecosystem where traditional IT channels don’t work – but you’ll need to sell directly for a long time as these new partners are not easy to ramp-up
- Savvy online marketing is a core competence (sometimes the only one) of every successful SaaS business – by definition, your sales prospects are online.
- Stay local – Prove your business in North America first. Only after reaching $1M in CMRR should you consider hiring European sales and services execs behind customer demand. Save Asia for post-IPO. [Okay, this is clearly Yank-centric but you get the idea].
- Single instance, multi-tenant, single datacenter – Have only one version of the code in production. Really. “Just say no” to on-premise deployments.
- The most important part of Software-as-a-Service isn’t “Software” it’s “Service” – Your customers’ data is a core asset. Take care of it.
- Be prepared to cross the desert – SaaS requires R&D and sales expense up front for a multi-year stream of revenue, so it demands enough investment capital to fund 4+ years of runway. Load up for the long trip and pace your consumption of calories.
BONUS LAW: You can ignore one of these, but not more than two. Great companies innovate, but pick your battles.