SaaS

Peppermint Bark: Welcome to La Primavera Café ! I um.. Hope you’ll enjoy your stay with us ! Feel free to ask us anything ! 


Characters from left to right: Cherry Cola, Latte Arte (kajeaynart), Marmalade Star, Sugar Snow (conflitdecanard), Peppermint Bark, Sugar Plum (moonwish).

Feel free to ask these lovely ponies anything guys ! You may also come and take a seat at the café, you might enjoy the variety of drinks and pastries during these cold days ~

Reporting for SaaS startups

The last day of every month, after midnight, I run our reports and send out a summary email. It’s starts with “dear friends”, and it goes out to team members, investors and friends.

That email has the following sections:

  • Milestones achieved
  • Current projects
  • Obstacles: eliminated and pending
  • Financials: cash in hand, funding, revenue and expenses
  • Marketing: cost of acquisition, total spending
  • Revenue: lifetime value per customer, other lines of revenue
  • Product: New features, backend status
  • HR: employees, freelancers, collaborations
  • Next Priorities

It’s a great exercise in planning and execution. The goal is to keep everybody aligned on what the company is trying to do, and the steps we’re doing to get there.

Because it goes out to every single person in the team, I think it’s also a powerful tool to align efforts. And it helps me stay accountable towards them.

The monthly email

If you’re already sending out a monthly update, congrats! You’re a step ahead most people. But even if you do, I’d like to share some pitfalls I typically see:

  • Avoid vanity metrics, like total historic revenue or total users.
  • Focus on a few actionable metrics: retention, signups per month, cost of acquisition, burn rate.
  • Don’t just say what you did. Put it in context of your vision.
  • Don’t leave the bad news out. Your team deserves to know.
  • Don’t just share monthly results: Offer the full spreadsheet so people can put them in context.

As a CEO, your role is to execute on your vision of the company and reduce uncertainty for your team. Transparency breeds trust, and that will pay off over time.

Reporting

I’m not a big fan of business plans, but I’ve found a good balance between reporting and a “monthly summary” that works for us.

Open the example spreadsheet

The spreadsheet is a Google Docs with sections for Overview (month-by-month metrics), Expense reporting and Paycheck tracking:

Here’s how it works:

  • The first column is “Current”. It lists the latest snapshot of a metric, like our current MRR or burn rate.
  • Then there’s one entry per month: June, July, Aug, etc.

Then there are rows for each reportable metric:

  • USD/EUR exchange rate. Important to track with time, as it affects our cash flows.
  • Total active customers
  • Churn: what’s the % of customers who cancel every month?
  • Cost of acquisition: If we spend $1000 in marketing and we acquire 10 customers, then CAC is $100.
  • Lifetime value: If a customer spends $10/mo and stays for an average of 10 months, LTV is $100.
  • Monthly recurring revenue: Active customers * average revenue per customer.
  • Users: new, total, daily actives and monthly actives. Important for retention.
  • Revenue from subscriptions
  • Expenses for payroll, marketing, freelancers, legal and software.

As a summary of these metrics, we get two important insights:

  • Is LTV larger than CAC? If so, it means we have a profitable marketing channel.
  • With the cash in hand, how long can we survive assuming we don’t grow significantly?

In the example spreadsheet, we see that the company is losing about $12k a month, which gives it around a year and a half lifetime with the current revenue and expenses. Since it has LTV > CAC, it can continue investing aggressively in growth. If growth ever slowed down, that company could always cut back expenses to guarantee that it always has more than 6 months to live.

As a rule of thumb, I find 6 months to live to be enough to react to most adverse scenarios.

Bonus points: notice that the spreadsheet includes tabs with detail views for employee paychecks and expenses. It’s simple: for every month worked, you add a “receipt” to the employee tab. For each payment you send them, you add a “payment”. The difference between them is the amount owed.

Conclusions

Reporting doesn’t have to be painful. You can learn a lot about your business by spending one day a month keeping these up to date – and your whole team will benefit from the transparency.

Next time I’ll run a post about forecasting recurring sales, and how we’re able to predict quite precisely our revenue in future months. Conversely, this allows us to know how much we need to invest to hit a given revenue milestone.

PS: Big shoutout to @jjmata and @nachog, who have inspired me to do better reporting.

SaaS User Experience Lesson: Contact Your Customers

Yesterday evening we were driving back to the city from an afternoon in the suburbs. The drive was completely uneventful until we got to the EZ Pass toll booth on the Triboro bridge. We have had our current EZ Pass for at least a decade and never had a problem with it. So I was rudely surprised when the gate did not open and the sign said “Contact EZ Pass, Low Balance.” We rapidly had a large number of honking cars behind us. We sat there for several minutes with the honking getting ever more aggressive with no sign of anyone coming to help. During that time I called EZ Pass which turns out not to have 24x7 customer support (this was a little past 6pm on a Sunday evening) and the automated system didn’t accept our tag number.

I got out of the car not once but twice trying to look for someone to help. Each time being told by one of the people collecting tolls in the other lanes to immediately get back into our car. The cars stuck behind us by that time had figured out how to back up far enough to get into a different lane. Finally a police officer shows up. He scans our tag with a handheld device and says “EZ Pass has removed your account.” Me “Come again?” Officer “Yup. Not just suspended. Removed.” And just like that he bagged our tag, made us pay $7.50 in bridge toll and handed us (after another 5 minute wait) a receipt for out tag.

There is a terrific lesson for SaaS subscription businesses in here: Don’t ever turn a customer’s access off without warning. I had used our EZ Pass as recently as the previous weekend. Absolutely no sign that anything might be wrong. No “Contact EZ Pass” with the gate still opening. No prior email or text message. Nada.

If you have a customer whose credit card has expired or who has gone over some usage limit or in some other way requires contact make sure to provide ample of warning. Ideally do so via redundant channels, such as email, directly in the product’s user experience, even in return codes from the API. Whatever you do, don’t just turn off service. It makes for a terrible user experience. If I had any choice in providers I would never go back to EZ Pass.

That brings me to another lesson here, this one for the cities and highway authorities offering EZ Pass. The system readers should have an open spec and allow multiple competing consumer tag providers. Without a doubt that would improve the user experience and probably help drive adoption much higher as well.

5 reasons I left Consumer Internet for B2B SAAS

You hear it a lot from investors “I only invest in B2B or SAAS”. It was really frustrating when I was building Lucky Ant. Consumer internet is so much cooler. You get to tell your friends about what you’re building and they get all excited and then you get all excited. And yet, here I am 2 years later leaving the consumer internet space for B2B. Here are some reasons why:

5. B2C is sexy and that’s not always a good thing

The consumer internet market is very crowded and when something good starts happening, it gets even more crowded very fast. Everyone and their mother has an idea for the next great app that’s going to “change the way people [blank]”. We tend to think in terms of our wants and needs, so it’s natural that more people are thinking of how to solve consumer problems than business ones. The result is often a mob mentality. Look at the Groupon clones for example. At one point there were thousands of group buying sites. This makes it harder to differentiate yourself and opens you up to way more competition.

4. Less players means more opportunities

Since B2B is less sexy, it also means there are less people solving problems, and yet I would argue there are more problems to be solved. When we were drawing up ideas for Startup #3 with Vincent, we came across way more “unsolved opportunities” in the B2B market. The fact that Dowza does not exist yet really speaks to that, and it’s why the most common reaction I get is “wait, no one’s done that yet?”

3. Lottery Tickets are not for me

Expanding on the crowdedness (is that a word?) of the B2C space, oftentimes, since there are so many players and you need so many customers to be profitable, there are only one or two big winners in any given market. Kickstarter & IndieGogo in Crowdfunding, Groupon & LivingSocial in Group Buying, Facebook & Twitter in Social Networking. This doesn’t mean there aren’t plenty of other players doing great things, but these guys without a doubt own their markets. Getting that big though requires a lot of work, but also a lot of luck, and as a result there are plenty of strong companies that didn’t do so well despite very similar business models. Hipstamatic comes to mind. 

2. Being Closer to Customers

What I didn’t like about working in the consumer space was that in order for our numbers to make sense they needed to be big. In order for them to be big, we couldn’t afford to really spend time with our customers. When we started growing Lucky Ant we quickly went from hour long phone calls to 10min max, to no phone calls, to almost no emails. It was by necessity and most definitely by design, but it was frustrating. Having 50million customers is not the same as having 1million and yet some great B2B businesses operate on smaller numbers than that. This (I hope) will allow me to be closer to my customers and better strengthen our product through their feedback loop. 

1. Recurring Revenue

Without a doubt the number one reason I prefer SAAS is because of recurring revenue. A professor at Penn once told me that if I could find recurring revenue, I’d be happier. I didn’t get it at the time, but after having lived through $150,000 revenue swings month to month in Lucky Ant, I get it. I really really get it. Recurring revenue brings stability which in turn fosters a better work environment and allows you to take more risks and to grow faster. 

special bonus reason: Building a B2B product requires more rigor. Business clients are more demanding (rightfully so) and so from a conception side we cannot leave anything to “good enough” on Dowza. This is exciting for us because it means we can really get our hands dirty and build something we’re proud of. 

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Joseph Pine explains that people don’t want goods and services anymore. Customers want experiences, real ones. Product managers and designers should listen to him.

Shopping & A Surprise || Harry + Andie

Harry texted Andie back letting her know he was leaving now before getting dressed in skinny jeans and a flannel. He finished off with his signature brown boots and a beanie before grabbing his phone, wallet and keys and heading to his car. He was excited to spend a day shopping with his sister since he had been out of town lately and he hadn’t gotten to see her in a while. His nephew was set to be born any day now so Harry was excited to sort everything out for him before he gets here. Harry began to drive to his mum’s house, singing along to Christmas music really loud that was playing on the radio. Before he knew it, he was pulling into the driveway. He decided to text her that he was outside since he knew his mum wasn’t home so there was no need to go inside.