The Big Ten:

1. The key monthly business metrics are CMRR (Committed Monthly Recurring Revenue), Churn, and Cash flow – The “Bookings” metric is for suckers.
2. Customer Acquisition Cost and Customer LifeTime Value are the best indicators of long term value creation.
3. 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.
4. Separate your “hunters” and “farmers” and pay them all on CMRR growth.
5. 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
6. Savvy online marketing is a core competence (sometimes the only one) of every successful SaaS business – by definition, your sales prospects are online.
7. 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].
8. Single instance, multi-tenant, single datacenter – Have only one version of the code in production. Really. “Just say no” to on-premise deployments.
9. 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.
10. 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.

Check out the Bessemer presentation.

If you like this, I think you’ll also like Kennet on growth equity and bootstrapping. (Disclaimer: Velocity wrote and designed the Kennet website).

© Doug Kessler for Velocity Partners, 2009. | Permalink | One comment | Add to del.icio.us
Post tags: metrics, SaaS, Venture Capital

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