tag:blogger.com,1999:blog-188673752024-03-08T00:02:53.650+01:00The Angel VCThoughts on Internet startups, SaaS and early-stage investing from Christoph Janz @ Point Nine Capital.Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.comBlogger193125tag:blogger.com,1999:blog-18867375.post-69138025230526625682020-01-30T01:02:00.000+01:002020-01-30T01:02:08.645+01:00How to Get Press Coverage<span style="font-size: large;">Startup PR for Dummies</span><br />
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Public Relations (PR) is not a high priority for most early-stage startups. If you keep in mind how many different hats founders have to wear in the early days to build a product, get customers, hire a team and raise money, you’ll understand why. However, I’ve seen plenty of founders miss out on PR opportunities like a funding announcement due to mistakes that would have been easy to avoid.<br />
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That’s sad because startups can benefit from media coverage in multiple ways. Coverage by the right publications can generate inbound leads from potential customers. Good PR can also make you look much bigger than you are, which can be useful when you’re talking to potential customers and partners. Finally, sometimes the biggest benefit of media coverage is that it can help with recruiting by spreading the word in the startup ecosystem and contributing to your employer brand.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOvmP-WLNxDZ1LeM9Z59mWHlM5TBv7SpUVH6QNlYSS2YYQRMl0Imp6I7Qb-WIUZmJdq52o0fLNZM8k3AwvQ_wMrkfcQNVxEL5rAt1n1YzFaxjHN6Djq5dBnp1Vhh_FcWT_kFT8/s1600/purple_cow.jpg" imageanchor="1" style="clear: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img alt="" border="0" data-original-height="522" data-original-width="880" height="236" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOvmP-WLNxDZ1LeM9Z59mWHlM5TBv7SpUVH6QNlYSS2YYQRMl0Imp6I7Qb-WIUZmJdq52o0fLNZM8k3AwvQ_wMrkfcQNVxEL5rAt1n1YzFaxjHN6Djq5dBnp1Vhh_FcWT_kFT8/s400/purple_cow.jpg" title="Mike Butcher gets 500 emails a day. His advice on how to get his attention: Be a purple cow." width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Mike Butcher gets 500 emails a day. His advice on how to get his attention: Be a purple cow.</td></tr>
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Some founders intuitively master PR immediately, but others don’t. If you think you might be in the second category and you want to increase your knowledge from zero to 101, then this post is for you. The caveat is that I’m not a PR expert by any means, so if you’re reading this and you think I got something wrong or if you have any suggestions, please let me know!<br />
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As a clarification, when I talk about PR in this post, it’s about how to obtain favorable media coverage on company news. I’m not talking about crisis management, lobbying, or other types of PR that are usually less relevant for early-stage tech startups. If you want to learn more about these aspects of PR you should talk to someone who knows much more about the topic than I do. I’m just trying to teach you a few basics on how to pitch to journalists so they’ll finally write about the cool stuff you’ve spent so much time building. :-)<br />
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Remember that journalists are humans, too.</h2>
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Try to put yourself into the shoes of the human on the other side. If you’re trying to pitch a writer of, say, TechCrunch, try to imagine what her job looks like, what her goals are, and how you can help her achieve those goals. I imagine that as a TechCrunch writer:<br />
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<ul>
<li>You are inundated with 100s of emails and press releases every day.</li>
<li>Your job is to quickly scan through haystacks of press releases, most of them sent to you by self-declared market leaders who all claim to revolutionize billion-dollar markets. Most of those press releases are filled with self-praise and unrealistic claims and are so full of buzzwords and jargon that (if you haven’t given up on taking a look at them yet) you cringe as you’re trying to go through them.</li>
<li>Your job is to find a needle in these haystacks. You’re looking for a new company or new product that makes for an interesting story for your audience. It needs to be an announcement that can be fact-checked within the few days that you have for the story. And of course, you want to be the first publication to write about the news.</li>
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Just by keeping this in mind and by trying to help the journalist achieve her goals, I believe you’ll avoid most mistakes, but let me add a few more practical tips.<br />
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1. Target the right people</h3>
Maybe this is too obvious even for a “Startup PR 101” post, but just to be sure: Target the right publications and the right writers at those publications. Before you reach out to potential customers or VCs you probably (hopefully!) do research to qualify them and to target the right person with the right message. Targeting journalists is no different. By checking out news archives you’ll quickly find out which writer covers which topics, which will help you avoid sending a consumer internet story to the security technology writer. Also, consider the regional aspect. If a journalist has already covered several companies in your country or region, it’s more likely that he or she is receptive. The more you know about the publications and the writers you’re trying to pitch, the better your chances.<br />
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2. Don’t waste money on mass distribution services</h3>
Circulating a press release using a distribution service like Business Wire or PR Newswire is completely useless. Maybe these services help larger companies to be found by journalists who monitor them. But as a startup, no one is looking for news on you, so you can save those expenses.<br />
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3. Leverage your network</h3>
Ask your investors if they have connections to journalists and ask them for intros. The fact that you’ve raised money often gives you credibility. If some people thought you were interesting enough to give money to, then some people are likely to find you interesting enough to read about too.<br />
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4. Build relationships ahead of time</h3>
If you can’t get a warm intro, try to build a relationship with the writer way before you’ll pitch him. Read his articles and leave thoughtful comments in the comments area. Try to engage with him on Twitter. Try to meet him at a conference. Try to be genuinely useful to him e.g. by offering him an introduction to someone you think he might be interested in talking to. Everything is better and more likely to work than an out-of-the-blue cold email.<br />
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5. No BS</h3>
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<tr><td class="tr-caption" style="font-size: 12.800000190734863px; text-align: center;">Journalists are looking for purple cows, not their excrements. ;-)</td></tr>
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Because journalists are bombarded with news from companies that all claim to be the next big thing, they have highly sensitive bullshit antennas. Don’t make claims that you can’t back up with data and evidence. Don’t use superlatives unless you’re sure that they are warranted.<br />
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6. Keep it simple</h3>
Make sure that the background knowledge required to understand your press release is aligned with your audience (the journalist and the readers). Focus on one or two key messages, supported by some background information and few supporting messages. If you’re trying to convey too many things at the same time, there’s a high risk that you’ll lose your reader and will end up conveying nothing at all.<br />
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Neil Murray, the founder of The Nordic Web, was kind enough to review a draft of this post and commented:<br />
<blockquote class="tr_bq">
“I’d suggest keeping the press release to a one-pager, with three bullet points at the top with the main points you want to get across and then 3–4 paragraphs elaborating on them, including a bit of background on you as a team and a quote or two from an investor and/or a customer.”</blockquote>
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7. Make it easy for them</h3>
Make the job of the journalists as easy as possible. If you give them text snippets that are well-written and free of self-praise, they might be able to include some of them almost using copy & paste. A good test is: Try to imagine if your story could be published almost as-is in the publications you’re targeting. If you read your draft and get the feeling it could never be published by someone who is trying to cover your story in an objective way, there’s probably something wrong and you should redo it.<br />
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8. Consider giving someone an exclusive and try to create some urgency</h3>
Giving a journalist “an exclusive”, i.e. the opportunity to be the first one to “break the news”, makes it much more attractive for him or her to write about you. You can obviously give that exclusive to only one journalist, but especially in the early days, you might have to use this trick to gain any coverage at all. If you go for it you can still pitch other journalists beforehand, but you have to embargo the press release for them.<br />
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To this point, Neil Murray added:<br />
<blockquote class="tr_bq">
“It’s also completely OK to be upfront about this, flatter them by saying you are taking this to them first but that you need a response within 48 hours whether they are interested otherwise you will have to take it elsewhere. I’d suggest creating some level of urgency. This will also lead to a definite answer and as we know in fundraising, a no is better than a maybe.”</blockquote>
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9. Tell them how much you’ve raised</h3>
If you’re announcing a funding round, journalists will ask you how much capital you’ve raised. In most cases, my recommendation is to disclose the amount or at least give the journalists an approximate number. If an early-stage startup says “undisclosed”, journalists will typically hear “small amount” and become less interested in covering you. Also, if you don’t provide a number there’s a risk that someone will make one up, and once a rumored amount makes it into a news article somewhere, it will often get repeated by others.<br />
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If a journalist pushes you for details that you’re not comfortable disclosing, e.g. your revenue numbers, politely decline to answer. Consider giving him or her a range or try to shift his or her attention to another relevant number (“we’re not disclosing any revenue numbers at this point in time, but what I can say is that we have more than 10,000 signups from more than 50 countries”).<br />
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<h3>
10. Write a founder blog post</h3>
Because press releases are so overused, my guess is that many journalists have become averse to the typical press release format and style. Therefore I think it’s worth considering writing a “founder blog post” instead of the classical press release, as a blog post by the founders comes across much more authentic and personal. I asked Mike Butcher, Editor At Large at TechCrunch, for feedback about this question, and his response was:<br />
<blockquote class="tr_bq">
“I think ‘founder blog posts’ are generally useless UNLESS it comes AFTER you have had press coverage which you can then refer to.”</blockquote>
So press releases aren’t dead yet, after all.<br />
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<h3>
11: Come up with a great story</h3>
Last but definitely not least, keep in mind that what the media wants is great stories. Given how many startups there are, it’s likely that there are several companies that are doing something similar or at least superficially similar to you, so you’ll have to find a way to stand out. The fact that you have a nice product and that you’ve raised a VC round doesn’t necessarily make your announcement newsworthy in the eyes of a journalist, so try to find a unique, exciting angle. If you can link your announcement to a big event, news story, or current discussion in the industry (AKA news hijacking), that’s even better!<br />
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PS: When I asked Mike Butcher if he could take a look at a draft of this post, he sent me a video of a presentation he gave at a startup conference a couple of years ago. <a href="https://vimeo.com/121361470" target="_blank">Take a look.</a><br />
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<i>This post first appeared on <a href="https://medium.com/point-nine-news/how-to-get-press-coverage-fe9dfb1249c8" target="_blank">Point Nine's Medium channel</a>. Thanks to <a href="https://medium.com/u/8e9169e3730c?source=post_page-----fe9dfb1249c8----------------------">Neil S W Murray</a>, <a href="https://medium.com/u/47edbb50faa4?source=post_page-----fe9dfb1249c8----------------------">Mike Butcher</a> and fellow P9er Ami for reviewing an earlier draft of this post and for the great feedback (and corrections!).</i><br />
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-5115988944821280442019-09-10T09:44:00.000+02:002019-09-10T09:44:56.852+02:00The Three Rules of Freemium<div class="separator" style="clear: both; text-align: left;">
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At the SaaStr Europa conference in Paris a couple of weeks ago I sat down with Joaquim Lecha, the CEO of our portfolio company <a href="http://www.typeform.com/">Typeform</a>, to talk about “Freemium at Scale”. Founded and headquartered in Barcelona, the company launched a free version of its service seven years ago. During our conversation Joaquim revealed that this free service helps drive 180,000 monthly signups, and about 3% of those signups convert into paying users who are billed anywhere from €25 to €70 per month, depending on the plan they choose. In other words, Typeform is effectively leveraging a free version of its product to drive paid subscriptions at scale.<br />
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I have a bit of a love/hate relationship with the freemium model. Done right, freemium can lead to amazing success. One of the best examples is Dropbox, which Tomasz Tunguz called the <a href="https://tomtunguz.com/dropbox-s-1/">“King of Freemium”</a>. What makes the company unique, he argues, is how it transformed its free users into evangelists. “Unlike other SaaS companies, Dropbox spends more of its revenue on engineering than sales and marketing,” Tomasz wrote. “Typically, businesses spend twice as much on S&M.” In a piece <a href="http://christophjanz.blogspot.com/2018/05/10-observations-from-dropboxs-s1.html">I wrote</a> when Dropbox went public last year, I pointed to the section of the company’s S1 that detailed how Dropbox drove sales of its enterprise solutions. Unlike most other enterprise software, which traditionally used to be chosen by the IT department, Dropbox is typically adopted by individual employees from various departments, who then lobby management into switching. As I noted in my piece, Dropbox was one of the early champions of the ‘consumerization of enterprise software’ movement, which was one of the strongest drivers of SaaS success in the last ten years.<br />
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But not every SaaS company can be a Dropbox or a Typeform. Done wrong, freemium can end up cannibalizing your paid user base while also draining your company’s precious engineering and customer support resources. So how do you know if launching a freemium product is the right move for your company?<br />
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Let’s discuss some of the pros and cons of the freemium model.<br />
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<h3>
The downsides of freemium</h3>
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I think many SaaS companies are too optimistic in thinking that they can just offer a free, pared-down version of their software and that this will result in a wave of user signups followed by increased revenue once those users make their way down the purchase funnel. But there are a number of factors you should consider first:<br />
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<b>Added costs: </b>Given that SaaS is an extremely high-gross-margin business, one might think that you can easily support free users. However, even if your gross margin from paying customers is 80% to 90% (i.e. your CoGS are only 10% to 20%), those costs can become very significant if you grow a large user base that doesn’t generate any revenue.<br />
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From engineering to hosting, the freemium model will require consistent upkeep that drains resources that would be otherwise devoted to your paying customers. And even though your freemium users won’t be paying a dime, they will still expect some level of customer service. In our discussion at SaaStr Europa, Joaquim revealed that, on average, 70% of Typeform’s support tickets come from free users and that the company spends $130,000 per month supporting them.<br />
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Now, Joaquim didn’t consider this too high a price to pay for the various benefits of having a free plan (more on that below), but for other companies, the upside/downside assessment may look different. If your business has lower-than-usual gross margins (e.g. because your SaaS solution includes a service component or because your product is particularly costly in terms of infrastructure), you should think extra hard about whether freemium is right for you.<br />
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<b>Cannibalization of paying users: </b>For any freemium model, the running assumption is that a certain percentage of non-paying users will eventually convert into paying customers. But what should also be considered is how usage will flow the other way. In other words, some people, who without a free plan would have become paying customers, will be fine with the free plan and won’t need the paid version.<br />
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<b>An imbalance of product features: </b>A freemium approach requires a delicate balance. Provide too many features for free and you risk cannibalizing your paid user base. Offer too few features and you eliminate the value proposition for users to sign up in the first place. Typeform walks this tightrope well, limiting its free surveys to 10 questions and 100 responses. Converting to the paid version grants the user unlimited questions and responses, as well as advanced features such as logic jumps and design personalization options. Not every SaaS company can strike that kind of balance.<br />
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<b>Less focus on core users: </b>An important factor to keep in mind is that having a freemium model will almost inevitably have a strong impact on your product roadmap. If you have a free plan, chances are that for every paying customer you’ll have 10–20 (or more) non-paying users. It’s hard to ignore the feedback of a group of users that represents 90–95% of your total user base. Listening to those users doesn’t have to be a bad thing, but it may. It all depends on how similar your non-paying users and their use cases are to your paying customers. In this interesting analysis about the <a href="https://www.profitwell.com/blog/evernote-tradeoffs">“rise, fall, and future of Evernote”</a> — once the poster child of freemium — Patrick Campbell and Hiten Shah conclude that “trying to appeal to everyone and not building the functionality that core customers want to use made Evernote’s product feel stagnant, which is definitely a tradeoff they should never have made.”<br />
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Widening the top of the funnel also makes it critical that you are excellent at identifying the best leads effectively and efficiently. If you don’t do that, your valuable signups might fall through the cracks in all the noise.<br />
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<h3>
The benefits of freemium</h3>
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Most of the above challenges can be overcome if your free plan leads to a much larger top of the funnel and if you can convert enough free users into paid. A freemium model will likely lead to a lower conversion rate, but that’s OK if it’s more-than-offset by the increase in signups. Assuming that you can keep conversions at a sustainable level, then the freemium model can have several benefits:<br />
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<b>More active users: </b>One of the biggest challenges that SaaS companies face is driving adoption of their product. And while some users can be enticed by a free trial period, there’s a subset of consumers who are just more likely to keep using the product if it’s free. Others won’t even sign up in the first place if there’s no free plan.<br />
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<b>More evangelists and a positive impact on your brand:</b> You shouldn’t measure a user’s worth solely on whether they eventually start paying you. The larger the number of active users, the greater the pool of potential evangelists who will promote your product to new users. In my discussion with Joaquim, he told me that users who were aware of Typeform’s brand prior to signing up were twice as likely to convert into paid users than those who came in via non-organic channels. <a href="http://www.qwilr.com/">Qwilr</a>, another Point Nine portfolio company, has made the same observation.<br />
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<b>Amplify virality: </b>The strongest rationale for going freemium is having a product with a built-in viral loop (like Typeform or Dropbox). If you’d like to dig deeper into viral growth in SaaS, check out <a href="https://medium.com/point-nine-news/understanding-viral-growth-in-saas-45eea50d8900">this great post by my colleague, Louis</a>. One caveat I’d add is that you can’t take it for granted that your free users will have the same viral coefficient (or k-factor) as your paid users. In many cases, your average free user will be less active than your average paying user and will therefore lead to fewer referrals. It doesn’t have to be like that, though. In an ideal world your paywall is built in such a way that users have an unlimited ability to share (or do whatever it is that makes your product viral) and monetize something else.<br />
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<b>More user feedback: </b>In our talk, Joaquim pointed out another advantage of having a large user base: It allows Typeform to learn from a much larger number of people. That’s a very interesting aspect that I hadn’t thought about before. Keep in mind, though, that as mentioned further up, depending on your product and industry, feedback from free users may be more or less relevant.<br />
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<b>Re-engaging trial users: </b>Every SaaS company will have a certain subset of users who will sign up for a free trial of the paid product and will not convert into a paying user once the trial period ends. Introducing a freemium version allows you to re-engage these users with the possibility of converting them at a later date.<br />
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<h3>
Making the decision</h3>
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So now that we’ve looked at the potential upsides and risks, how can you decide whether launching a freemium product is the right choice for your company?<br />
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Ultimately, only an A/B test can answer this question. However, getting reliable results will take a lot of time, especially if you want to measure the impact on virality and if you have a viral cycle time of, say, six months. If you can’t wait that long (or if you’re not equipped to do a complete-funnel A/B test), here are my “Three Rules of Freemium”:<br />
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<b>1) Does your paid plan have a gross margin of 80–90%?</b><br />
If you have a lower gross margin — for example, because your product is not fully self-service, requires extensive customer support or is extremely costly in terms of tech infrastructure — freemium will probably not work for you.<br />
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<b>2) Does your free plan attract the right audience?</b><br />
If your free users are too different from your paying users, your free-to-paying conversion will be low — and you’ll risk developing your product for the wrong audience.<br />
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<b>3) Is your product inherently viral?</b><br />
If your answer is no, that doesn’t make it a complete no-go, but it does mean that it’s much less likely that freemium is right for you.<br />
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<h3>
Wrapping up</h3>
In the end, freemium only makes sense if a certain percentage of your free users do one of three things: 1) Eventually convert to paid, 2) refer paying customers, or 3) provide the kind of valuable feedback that will improve your product. A freemium product that fails to achieve any of these effects will merely saddle you with extra costs and distract you from servicing your most important users. Not every company can be a Dropbox, but the good news is that not every SaaS company needs to adopt Dropbox’s freemium model to succeed.<br />
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<i>This post was first published <a href="https://medium.com/point-nine-news/the-three-rules-of-freemium-ebd85dfc6e5a" target="_blank">on Point Nine's Medium channel</a>.</i>Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-76177393801397367812019-04-07T01:02:00.001+02:002020-03-13T18:39:37.155+01:00Five years later: Five ways to build a $100 million SaaS business<div class="separator" style="clear: both; text-align: left;">
Back in 2014, I wrote a post titled <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">“Five ways to build a $100 million business”</a>. If you haven’t seen it yet, the central idea of the article was to look at how many customers you need, for a given ARPA, to get to $100 million in annual revenue and what this might mean for your sales and marketing strategy. That post went kind of viral, which led us to create <a href="http://christophjanz.blogspot.com/2014/11/three-more-ways-to-build-100-million.html">a follow-up piece</a>, <a href="https://labs.openviewpartners.com/5-ways-to-build-a-100-million-business-infographic/#.XKYbcOu3_s0">an infographic</a>, a <a href="http://www.5waysto100.com/">poster</a> (which you can <a href="https://www.redbubble.com/people/pointninecap/works/26060391-5-ways-to-build-a-100-million-business?p=poster&finish=semi_gloss&size=large&asc=u">order</a> here), and a <a href="https://twitter.com/PointNineCap/status/1097809510666854400">PlayPlay video</a>.</div>
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What did I learn from that experience? First, if you want to write a killer blog post, it helps if you take a difficult question and simplify it drastically, give it a catchy headline, and add pictures of cute animals. ;-) More importantly, though, using my five little animals as a simple framework has helped me challenge (and hopefully occasionally provide sound advice on) the scaling strategies of numerous startups over the last couple of years.<br />
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Based on my learnings in the last years, here is a slightly updated version of the chart:</h3>
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Here’s what’s changed.<br />
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Bye-bye, dear little fly!</h3>
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In my original post, I spoke about <i>five ways to build a $100 million Internet company</i>. The post wasn’t specifically about B2B SaaS companies, which is why two of the five ways dealt with customers with an ARPA of $10 and $100, respectively. I will keep the $100 ARPA customers (AKA mice) for now, but today it’s time to say goodbye to the $10 ARPA flies. Bye-bye, dear fly, you’ll always have a special place in my heart. Thank you for adorning so many slides and posters – maybe someone will resurrect you for a consumer-focused version of this framework.<br />
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Hail the whale!</h3>
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Five years ago, I thought it would make sense to use a $100,000 ARPA elephant as the largest animal on the chart. The main reason is that I grew up as a consumer software and consumer Internet founder, and even though I had already spent about five years as a SaaS investor when I wrote the post, my experience was heavily skewed towards SMB SaaS. I did include two larger animals in <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">a followup post</a>, but meanwhile, I think that the $1,000,000 ARPA whale deserves a place as one of the five prime SaaS animals. While there are only a few SaaS companies with an ARPA of around $500,000 (not quite a whale yet, but definitely much larger than an elephant) across the entire customer base (Veeva, Workday, Demandware, Opower,...), there are quite a few SaaS companies with a significant whale customer segment. Most public SaaS companies, unfortunately, don’t report any data broken down by different customer segments, but it’s pretty safe to assume that Salesforce, Box, Zuora, and a number of other companies derive a significant portion of their revenue from whale customers.<br />
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Why y is now x and x is now y</h3>
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This is a smaller, somewhat technical change. The <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">original chart</a> showed the number of customers on the x-axis and the ARPA on the y-axis. Since it’s more customary to use the x-axis for the independent variable (and as I think it makes more sense to think of ARPA as the dependent variable), I have switched the axes. I had made that change in the <a href="http://5waysto100.com/">poster</a> already and have now updated the chart here as well.<br />
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Some animals are more equal than others</h3>
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One thing I’ve learned over time is that just because there are five ways to build a $100 million business, it doesn’t mean that those five ways aren’t equally promising. To quote the pigs in George Orwell’s “Animal Farm” (one of the very few books that we had to read at school that I liked):<i> All animals are equal, but some animals are more equal than others.</i><br />
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Let’s take a step back. The key take-away of my “5 animals framework” is very simple: if you want to get to $100 million in annual revenue you’ll have to find customer acquisition channels that are highly scalable and profitable. Otherwise, you’ll never get to the number of customers that you need at your given ARPA. The problem is that most customer acquisition channels are either scalable orprofitable but not both at the same time (which is why early CAC/LTV metrics can be so misleading, <a href="http://christophjanz.blogspot.com/2017/10/knowing-when-to-scale-and-how-to-prove.html">more about that here</a>). Now, it seems like in some ARPA regions it’s easier to scale profitably than in others. This is certainly what we’ve seen in our portfolio: Several of our SaaS portfolio companies successfully went upmarket – oftentimes from rabbits to deer or even elephants – when they saw that they would hit a growth ceiling in their existing segment. One of the underlying reasons is that in order to get very large, <a href="http://christophjanz.blogspot.com/2015/02/why-most-saas-startups-should-aim-for.html">you have to get your churn rate close to zero</a> (or better yet, achieve negative churn), which is usually not possible if you’re selling only to SMBs; the other reason is that outbound sales doesn’t work if your ARPA isn’t large enough, which sort of limits your addressable market to companies that are more or less pro-actively looking for a solution like yours.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhD9bZy-Ke9tNDCRLvQixADlZtuINcBk0mJDSL1dCHnW8OaM35D-pBIwVNECJsLPpxcPjv-VXVLKgJO0sXNrDEm5hrad14e9G_E3EBCx2AJJ4UckWQ9JjiT0WdLUHI2iYOcrvkD/s1600/Latka-December-Digital_pdf.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1154" data-original-width="888" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhD9bZy-Ke9tNDCRLvQixADlZtuINcBk0mJDSL1dCHnW8OaM35D-pBIwVNECJsLPpxcPjv-VXVLKgJO0sXNrDEm5hrad14e9G_E3EBCx2AJJ4UckWQ9JjiT0WdLUHI2iYOcrvkD/s320/Latka-December-Digital_pdf.png" width="246" /></a></div>
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvkUP2wR_FEejacplJ2yTkIsERmKAM3Nx2DhfkY_876oCslPmSbsB99aa2E_9ygaRK91zZYVj1v4mkaP3lHhEqb25xXvEa1MlVLKGe8mXuOCqCV-MCBq4CdqWcV-lyOIz13jaf/s1600/Latka-December-Digital_pdf.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em; text-align: center;"><br /></a>If you take a look at <a href="https://medium.com/@sammyabdullah/dont-obsess-over-average-contract-value-9545a59537d5">this analysis by Sammy Abdullah</a> of <a href="https://blossomstreetventures.com/">Blossom Street Ventures</a> (a VC with the tagline “We’re the anti-VC”, by the way) you’ll see that although Sammy points out that most SaaS companies don’t have an ACV of $50k or more, the vast majority of the 61 publicly traded SaaS companies from his list are deer or elephant hunters. Only 15 of the companies from the list had an ACV of less than $5k at the time of their IPO, and for some of them, the average is misleading because a large part of their revenue comes from customers with a much higher ACV (e.g. Zendesk, Box).<br />
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A <a href="http://nathanlatka.com/wp-content/uploads/2018/12/Latka-December-Digital.pdf">recent analysis</a> of private SaaS companies by Nathan Latka suggested the same. In his analysis, Nathan looked at 369 companies at around $1M in ARR. 186 of those (50%) are focused on rabbits or smaller animals (he really used those animal analogies). Of the 20 companies with $100M in ARR that Nathan looked at, on the other hand, only 6 (30%) are focused on low ACVs. If you are a successful rabbit-hunting SaaS company and you think you can keep growing in your current segment, these numbers shouldn’t discourage you, though. First, especially the numbers from private companies need to be taken with a grain of salt. And second, even if there is a statistically significant clustering of mid-market and enterprise SaaS companies at the $100M ARR mark, the data also shows that it’s possible to get there with a low ARPA!<br />
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[Update March 13, 2020: <a href="https://youtu.be/mFQ03tknhg8" target="_blank">Here's a webinar</a> that I did about the topic a few days ago.]<br />
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-3193198214983298222018-12-15T00:06:00.001+01:002018-12-15T00:11:24.029+01:00There are over 100 SaaS unicorns. How long did it take them to get to $100 million in ARR?A few days ago I wrote that <a href="http://christophjanz.blogspot.com/2018/12/theres-more-than-one-path-to-100-million.html">there’s more than one path to $100 million</a>. I argued that while it’s awesome to see that some companies are able to get from 0 to $100 million in ARR in 7-8 years or even less, trying to grow <i>that</i> fast may not be the best choice for most companies.<br />
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That raises the question: What are your chances of growing a little slower and still achieving massive success? Considering that most investors are pretty <strike>obsessed</strike> focused on finding companies that follow the legendary <a href="https://techcrunch.com/2015/02/01/the-saas-travel-adventure/">T2D3 growth path</a> (directionally confirmed by the <a href="https://medium.com/point-nine-news/what-does-it-take-to-raise-capital-in-saas-in-2018-204d0a46cb23">responses to our SaaS napkin survey earlier</a> this year), you might expect that your chances are low.<br />
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To answer the question, I took a look at the historic <a href="https://docs.google.com/spreadsheets/d/1c9dWe7d6mpiERi_yRh5dZxDlImAXNW5raB8fiO5Zzeo/edit#gid=1845850644">revenue development of ~70 of the largest SaaS companies</a>. A couple of notes (and some caveats) on the data sources and methodology that I’ve used:<br />
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<li>Most of the companies are publicly listed, in which case it was easy to get accurate revenue data from <a href="http://www.ycharts.com/">YCharts</a> or from the companies’ SEC filings.</li>
<li>For private companies, I used various online data sources, including Wikipedia and various blogs. For these companies, the numbers are by their nature less certain.</li>
<li>All revenue figures are based on GAAP revenue as reported by public SaaS companies, i.e. the numbers do not show a company’s ARR. In most cases, this doesn’t make a huge difference (if all revenue is subscription based, GAAP revenue trails ARR) but note that for companies with a larger percentage of setup fees, revenue from professional services or other non-recurring revenue sources, the difference is bigger.</li>
<li>Some companies use different fiscal years. As I didn’t want to look into monthly revenue numbers in order to get the exact revenue numbers for each calendar year, I used some simple rules in these cases: If a company’s fiscal year ends on March 31, I allocated the revenue of that fiscal year to the previous calendar year. If the fiscal year ends on October 31, I allocated it to the same calendar year.</li>
<li>In most cases, the “founded” date corresponds with the year in which the company was founded, but there are a few exceptions, like Slack, which started in 2009 with a completely different product and didn’t launch Slack as we know it today until 2013. In that case, I used 2013 for the “founded” year.</li>
<li>This is not a scientific project and the data hasn’t been double-checked by anyone so far, so it’s well possible that there are some bugs in there.</li>
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<b>Here are my findings:</b><br />
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<b>1.) I estimate that there are over 100 SaaS unicorns</b><br />
The list contains almost all public SaaS companies and some of the largest privately held ones that I could find public data for. In total, the list contains 70 SaaS companies. All of them are at $100+ million in ARR, and with the exception of one company (Domo), all of them are worth more than $1 billion. I can think of at least 10-20 other SaaS companies that should be added to the list (Talkdesk, Pipedrive, Intercom, OneLogin, AirTable, InVision, Procore, Canva, Asana,...), and I’m pretty sure there are <i>at least</i> 20 further ones that I’m not aware of. That makes it a pretty safe assumption that there are now 100 SaaS unicorns.<br />
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<b>2.) The average time-to-$100-million is 10 years</b><br />
There you have it! :-) Even if you look at a selection of the best of the best SaaS companies, getting to $100 million in 7-8 years is not the norm.<br />
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<b>3.) Growth has accelerated in the last decade</b><br />
If you only look at companies that were started in the last 15 years, the average time-to-$100-million drops to an impressive 8 years. That’s not too far away from the T2D3 path and it shows that it is indeed possible to grow that fast; however, there are also several companies in this cohort that took 10 or more years.<br />
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<b>4) Growth rates significantly drop as companies pass through $100 million</b><br />
In the bottom right corner of the sheet you can see the average y/y growth rates for the year in which the companies hit $100 million and for the following year. As you can see, the average annual growth rate drops from around 75% going in to $100 million to around 50% coming out of $100 million. This is not surprising – as Rory O’Driscoll of Scale Venture Partners <a href="https://techcrunch.com/2018/02/09/understanding-the-mendoza-line-for-saas-growth/">explained in this post</a>, growth rates almost always decrease with increasing absolute numbers.<br />
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-32364256677275017742018-12-12T16:19:00.000+01:002018-12-12T16:19:00.644+01:00There’s more than one path to $100 millionA couple of years ago I wrote a post titled <a href="http://christophjanz.blogspot.com/2015/03/how-fast-is-fast-enough.html">“How fast is fast enough?”</a>. The subtext of the question was “How fast do you have to grow if your ambition is to get to $100M in ARR and build a very large company”. It’s an important question, as your target growth rate determines your hiring plan, budget, and fundraising strategy.<div>
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In that post, I looked at how long it took publicly traded SaaS companies to get to $100M in ARR and concluded that if your goal is to reach $100M in ARR, you should try to get there within 7-9 years after launch. The thinking was that if you grow significantly slower, your chances of ever getting to $100M will go down. Meanwhile, a few SaaS companies have shown even more spectacular growth. Slack reached $100M in ARR <a href="https://medium.com/startup-grind/growing-as-fast-as-slack-195c1e194561">just two and a half years after launch</a> and Dropbox got to one <i>billion</i> dollar in ARR <a href="https://twitter.com/drewhouston/status/826151078316027906">within ca. eight years</a>. UIpath, the wildly successful robotic process automation solution out of Romania, is <a href="https://medium.com/birds-view/uipath-milestones-along-the-way-463028e90580">on a similar trajectory</a>. But if you’re thinking that in light of these bar-raising success stories, I will suggest to further push up your growth targets, I have a little surprise for you. :-) I’m going to say the opposite – that you might want to consider a slightly slower pace.<br /><br />To be clear, if you <i>can</i> pull off a <a href="https://techcrunch.com/2015/02/01/the-saas-travel-adventure/">“T2D3”</a>, that’s fantastic. A SaaS company that gets to $2M in ARR within 1-2 years, triples in each of the next two years and doubles in each of the three following years is headed straight to unicornland. If you can do that without burning hundreds of millions of dollars along the way (or even hitting a wall), go for it. The crux is that this is a pretty big „if“.<br /><br />Setting yourself up for T2D3-style growth usually comes with a very high burn rate – hundreds of thousands of dollars per month, eventually likely millions, depending on where you’re at in the journey. The main reason is that your customer acquisition costs are highly front-loaded. While this is generally true for most companies, it’s particularly true for SaaS businesses, which invest heavily in product development, sales, and marketing upfront and get payments from customers over a delayed period of time, usually several years. Let’s say you have a CAC payback time of 12 months, i.e. your fully-loaded customer acquisition costs equal 12 months of gross profit. If your customer lifetime is, say, four years, this means that the gross profit from the first year pays back your customer acquisition costs, and the gross profit from the following three years can be used to cover your fixed costs and eventually create profits. Not bad.<br /><br />What makes things tricky is, first, the uncertainty of how your CACs will develop at increasing scale and of how your churn rate will develop over time. As I wrote <a href="http://christophjanz.blogspot.com/2017/10/knowing-when-to-scale-and-how-to-prove.html">here</a>, trying to forecast what happens to your CACs if you 10x your sales and marketing spend is very difficult. The second issue is the timing of some of the major expenses. If you close a mid-market or enterprise customer today, it usually means that a salesperson, let’s call her Maria, has been working on the deal for 6-12 months. Maria probably required at least three months of onboarding and training, and chances are that three months before Maria’s first day at your company you paid a recruiter (or incurred other types of recruiting expenses) to find her. Presumably, you also increased your marketing budget to generate more leads 6-12 months before Maria closed that deal.</div>
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In other words, if you want to meet your Q1/2020 targets, you will likely start incurring costs related to these targets very soon, a year before you start to generate cash, and two years before these investments start to become ROI positive. That enormous lag time (which the always excellent David Skok calls the <a href="https://www.forentrepreneurs.com/saas-economics-1/">SaaS Cash Flow Trough</a>) makes it hard to course correct if things don’t go according to plan. Like a large tanker at cruising speed that cannot quickly take a turn, a startup with a fast-growing headcount and a high burn rate loses some of its ability to quickly react to new information, new insights, or changes in the market. </div>
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If you’re setting yourself up for hypergrowth, the margin for error is very thin. If you’re highly confident in your PMF and the scalability of your sales and marketing machine and you’ve raised enough money to survive a few missed targets, go for it (but keep a very close eye on pipeline coverage, quota attainment, and other leading indicators). If, however, you’re less certain or you have a smaller war chest, consider going a little bit slower. </div>
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One way to sanity check your budget is to simulate what would happen if your costs grew as planned while revenue increased only linearly, i.e. you assume that you’d keep adding the same amount of net new ARR in the next quarters that you’ve added in the last quarters. Let’s say you’ve grown from $6M to $18M in ARR in 2018, perfectly in line with the T2D3 mantra. Let’s assume you’re planning to double in 2019, from $18M to $36M in ARR, while burning around $20M (so you’d burn about $1.10 for each $1 of net new ARR, which is quite healthy). Now imagine that you’re spending money as planned, but instead of adding $18M in net new ARR in 2019 you’re adding only $12M, the same amount that you’ve added in 2018. As a result of missing your revenue target by 33% (or just 17%, if you want to fool yourself and calculate target achievement based on ARR as opposed to net <i>new</i> ARR), you’ll burn around $6M more than planned (the precise amount depends on your payment terms). I’ve created a <a href="https://docs.google.com/spreadsheets/d/1Bzs2JwPsP-szpgZXUgWGbLGVl_86U7NJcH-umfxmpVI/edit#gid=0">very simple model</a> that illustrates this.</div>
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As you can see, if you’re hiring for T2D3 growth but you end up growing revenue somewhat slower, the gap between your revenues and your costs will widen very quickly, which leads to a double whammy: Your runway shortened because you’ve burned more than planned, so you’ll have to raise again sooner, and at the same time your growth rate went down, which makes it harder to raise more money. In a situation like this, two or three missed quarters can be life-threatening if you don’t have enough cash in your war chest. Because of this, make sure that whatever path you choose, all key stakeholders (co-founders, board, investors, leadership team) are aligned on the plan and potential fallback scenarios.</div>
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The good news is that growing a little slower is not the end of the world. If you have a great product with high NPS, low churn, and an excellent position in your market segment, you have a decent chance of getting to $100M in ARR even if your growth rate starts dropping significantly below 100% y/y at around $10M in ARR. It just takes a few more years, but hey, $100M in ARR is cool even if it takes 10-12 years instead of 7-9, isn’t it? :) </div>
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Giving yourself one or two more years to get to $100M has an enormous impact on the required growth rates. You can see this if you play around with the numbers <a href="https://docs.google.com/spreadsheets/d/1tBP-IeRxFmWgm3R7r1KYcr0CI_MFoMs1qHnrM9RqCKM/edit?usp=drive_web&ouid=109536431217713833800">in this little calculator</a> that lets you calculate how fast you have to grow in order to reach $100M in ARR within different time spans. Besides a linear and an exponential growth model, it also shows what Rory O’Driscoll called the <a href="https://techcrunch.com/2018/02/09/understanding-the-mendoza-line-for-saas-growth/">“Mendoza Line of SaaS growth”</a>, a very interesting concept which assumes that your growth rate for any given year is likely around 80 percent of your growth rate in the prior year, which is a more realistic assumption than having a constant growth rate.</div>
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Now, what does the data tell us, are there any (or many?) SaaS companies that took a few extra years to get to $100M, or is it “T2D3 or bust”? I looked at more than 60 SaaS companies to answer that question, but I realize this post has already become much longer than planned, so with apologies for the cliffhanger, let me save the answer for a followup post that is coming very soon. :)</div>
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-143437028594901502018-11-08T11:02:00.001+01:002018-11-08T11:02:57.132+01:00Founders: Please don’t allow anyone to screw your early backers<h3>
Understanding the mechanics of founder re-ups in financing rounds</h3>
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This post will likely not make me more popular and might offend some people. But if your core beliefs on how business should be done are at stake, you can’t try to win the popularity contest.<br />
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If you know me a little you’ll probably agree that like everyone at Point Nine, I’m a pretty nice guy. We’re trying hard to <a href="https://medium.com/point-nine-news/making-european-venture-capital-a-little-more-human-51bdd4ad041">make venture capital a little more human</a>, and we really mean it when we say that we aspire to be <a href="http://christophjanz.blogspot.com/2014/11/good-vcs-bad-vcs.html">good VCs</a>. I’m pretty sure that almost all if not all of the more than 200 founders we’ve worked with over the last ten years would confirm this. </div>
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I’m not saying this to brag or to say that we’re perfect (which we are not, of course). What I’m hoping is that the reputation of being a nice, founder-friendly VC, which I believe we’ve earned in the last ten years, as well as the fact that I’ve co-founded two VC-backed startups myself and therefore know both the founder perspective and the VC perspective, gives me the right and credibility to write this post. Calling out others for questionable behavior always comes with the risk of hypocrisy, but I’m happy to subject our business practices to public scrutiny. If you think I (or anyone from my team) ever did not meet our standards, please reach out.</div>
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In the last year, we have seen, on more than one occasion, a behavior among later-stage VCs that we’ve rarely observed in the years before. This might be due to the fact that our portfolio has become mature, which explains why there are now more portfolio companies that are at the stage at which the issue (which I will detail in a second) tends to occur. It’s also possible that the increasingly intense and sometimes downright crazy competition for the hottest deals among later-stage VCs has made this behavior more prevalent.</div>
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Here’s what I’m talking about. In the last 12 months or so it happened several times that later-stage VCs, as part of financing rounds, offered a “re-up” (i.e. new shares or options) to founders of portfolio companies. By doing this, they try to partially or completely offset the dilution (i.e. reduction of ownership percentage) experienced by the founders in the financing round. If you think “Great, if founders get more shares and are diluted less, that’s awesome!”, think about the effect which this maneuver has on the existing investors of the company (as well as on employees holding options or shares).</div>
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If founders get a re-up, every single share, option, or ownership percentage that they receive (obviously) needs to come from someone. And that someone are the existing shareholders of the company. Oftentimes, the re-up shares are proposed to come out of the pre-financing cap table, in which case it’s obvious who bears the dilution. Sometimes it is proposed that the re-up shares are created post-financing. The latter might make the maneuver seem fairer on the surface, as it appears as if the new investors joined the existing investors in paying the price for the additional founder shares. But if you do the math, you'll see that it doesn’t solve the crux of the issue. More on that in the example below.</div>
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An investor who suggests a founder re-up does that, of course, to make his/her offer more attractive to the founders in order to increase the chance of winning the deal. If a founder considers two offers, one with a founder re-up of a few percentage points and one without, the offer with the re-up will be significantly less dilutive to him/her even if the offer without the re-up comes with a significantly higher valuation. Consider this simple example:<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD4GXiAhD1_SoPDHMGso2G7y-M4vISJ-KKFFVEJW3jR4rpkC40FADnYZjbeArZA2TviD9iEF9NmVftSSULZNzCgkO3RZ-lighv5VdmoOMCtoJgoxQmiuUs7SyGtbmfzQY60NE1/s1600/Re-up_model_-_Google_Sheets.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="216" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD4GXiAhD1_SoPDHMGso2G7y-M4vISJ-KKFFVEJW3jR4rpkC40FADnYZjbeArZA2TviD9iEF9NmVftSSULZNzCgkO3RZ-lighv5VdmoOMCtoJgoxQmiuUs7SyGtbmfzQY60NE1/s400/Re-up_model_-_Google_Sheets.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">(click for a larger version)</td></tr>
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This (simplified) cap table model shows the effect of a $40M investment on the founders’ shares in two scenarios: The first one assumes a $140M pre-money valuation and no founder re-up; the second one assumes a $120M pre-money and a founder re-up of 10% pre-financing (which equals a transfer of 3% of the post-financing equity from the existing investors to the founders). As you can see, the founders are better off in the second scenario, in spite of a ca. 15% lower valuation.</div>
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Let’s take a closer look at the mechanics that are at play here:<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7bXYCqPbfLRfU4WkhAD4Hw_C8gTyO0FyvbNJnxQYciFRMqpDv7eoztFaSNg8zwP3fh3Brh6HHVh_EOXv-KeCbBeF_J6AF9KKaWJou4Zmtur7GtdDF494VDO5pg-EI5L2pf76V/s1600/Re-up_model_-_Google_Sheets-2.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="150" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7bXYCqPbfLRfU4WkhAD4Hw_C8gTyO0FyvbNJnxQYciFRMqpDv7eoztFaSNg8zwP3fh3Brh6HHVh_EOXv-KeCbBeF_J6AF9KKaWJou4Zmtur7GtdDF494VDO5pg-EI5L2pf76V/s400/Re-up_model_-_Google_Sheets-2.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">(click for a larger version)</td></tr>
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(<a href="https://docs.google.com/spreadsheets/d/14K94YuPRNrgPWbdaTOjUeslncWDvYhgrONmeHAMzUhA/edit?usp=sharing">Here is the Google Sheet</a> if you'd like to see the calculations)<br />
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For all scenarios, I assumed that before the financing round, the founders and the existing investors own 60% and 40%, respectively, of the company. I further assumed that the company wants to raise $40M and that the existing investors will participate with an investment of $10M, so $30M come from the new investor.<br />
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Let’s say a VC (who I’ll call “VC 1”) offers the company a pre-money valuation of $120M (Scenario 1A). In this scenario, the founders and existing investors would hold 45% and 36.25%, respectively, after the round. Now let’s say another VC (“VC 2”) offers the company a higher valuation, $140M (Scenario 2). In this scenario, the founders would hold 46.67% after the financing, while the existing investors would be at 36.67%. Scenario 2 is significantly better than Scenario 1A, for the founders as well as the existing investors, so (assuming both VCs are of equal quality) the company should go for VC 2. <br />
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But VC 1 doesn’t want to lose the deal, of course. He/she could increase the valuation to make his/her offer more attractive, but hey, that would reduce his/her stake. So instead of offering a valuation that is equal to or higher than what VC 2 has offered, VC 1 now proposes a founder re-up of 10% of the pre-financing equity. As you can see in Scenario 1B, this would result in a 48% stake for the founders, which is significantly higher than the 46.67% they would hold if they went with VC 2. Meanwhile, nothing changed for VC 1, as he/she would own 18.75% in Scenario 1A as well as 1B, so everyone should be happy, right? Not quite: The existing investors’ stake in Scenario 1B is reduced from 36.25% to 33.25%, precisely by the three percentage points by which the founders’ stake is increased as a result of the re-up. This is the 3% transfer from the existing investors to the founders that I’ve mentioned a few paragraphs ago.<br />
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If VC 1 wanted to get the founders to 48% without meddling around with the cap table, he/she would have to increase the pre-money to $160M. You can see this in Scenario 1D. By offering a re-up instead, VC 1 managed to make his/her offer the top offer for the founders while offloading 100% of the costs of the re-up to the existing investors. Scenario 1C shows what happens if the investor is willing to do the re-up after the financing. In that scenario, he/she does end up with a lower stake compared to Scenario 1B (17.73% vs. 18.75%), but if you compare it with Scenario 1D (AKA the “don’t mess around with the cap table” offer), he/she is still much better off in 1C, at the expense of the existing investors.<br />
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I want to believe that the later-stage investors we’ve worked with so far all had good intentions, and maybe I should understand that if you’re trying to win a competitive deal and want to set up a company for success, concerns of other investors aren’t your number one priority. That said, there is an act which, according to Wikipedia, is defined as “giving something of value [in this case shares] in exchange for some kind of influence or action in return [in this case the deal] that the recipient would otherwise not alter.” ;-) The fact that here that “something of value” doesn’t even come from the later-stage investor, doesn’t make it any better.<br />
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Obviously, investors engaging in this tactic aren’t stupid, so the official version is usually not “rather than offering a higher valuation [which would benefit all shareholders equally], we’ll give you a lower valuation but will offset some of the dilution by giving you [the decision makers] some extra shares”. The official justification is almost always incentivization of the founders, i.e. some variation of “the founders only own x% of the company, we need to make sure they have enough shares to be fully motivated”. Well, if that was your concern, Mr. Late-Stage Investor, offer a higher valuation to make the round less dilutive. Oh, I forgot, that’s not possible because you have to own 20% of the company to make the investment worth your while. Sorry for getting cynical, but as you can see, this issue has caused me a great deal of annoyance.<br />
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The prospect of keeping a larger stake can understandably be tempting for founders, and once the pandora box has been opened by a new investor, it can be hard to shut it. What makes the situation particularly uncomfortable is that if as a seed investor you object the founder re-up, you suddenly look like the bad guy who doesn’t want to grant the founders some additional shares for all their hard work and who risks the entire deal by bringing up your concerns, while the later-stage investor looks like the good guy who wants to reward the founders. As we’ve seen in the example above, this interpretation is absurd because the later-stage investor proposes a reward that benefits him/her and is borne by someone else, but in the hectic and pressure of term sheet negotiations, this can be forgotten. Therefore it’s all the more important that founders fully understand the implications of a re-up and that they don’t let anyone divide their interests from the interests of other existing shareholders.<br />
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So is it always bad if an investor proposes changes to the cap table? No. There can be situations in which cap table restructurings may be necessary. If, for example, we wanted to invest in a seed-stage startup and found out that the company is majority-owned by an angel investor or incubator, we would most likely conclude that for the company to be VC-backable, and for the founders to be motivated and incentivized for the next ten years, something needs to change. But these are rare cases, and the fact that they exist doesn’t justify using founder re-ups as a tactic to win deals.<br />
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If any later-stage investors are reading this, please reconsider your tactics. Just treat upstream investors how you want to be treated by your downstream investors. Easy.<br />
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And to all founders out there: Please don’t let anyone screw your early backers.</div>
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-75716516670612976932018-05-13T00:30:00.002+02:002018-05-13T00:30:37.871+02:0010 Observations from Dropbox's S1In last week's post I shared some <a href="http://christophjanz.blogspot.com/2018/05/dropbox-ultimate-mouse-hunter.html">thoughts about Dropbox</a> and why, although Dropbox is unquestionably one of the most amazing SaaS companies ever built, I am a tad less confident in the company's long-term future than I am in other SaaS leaders such as Salesforce.com, Zendesk, or Shopify.<br />
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As mentioned in the first part of the post, I took a closer look at Dropbox’s recent IPO filing and would like to share some tidbits, along with a few observations.<br />
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<br />
<h2>
<strong>#1 – Dropbox on consumerization</strong></h2>
<blockquote class="tr_bq">
<b>"Individual users are changing the way software is adopted and purchased</b><br />Software purchasing decisions have traditionally been made by an organization’s IT department, which often deploys products that employees don’t like and many refuse to adopt. As individuals increasingly choose their own tools at work, purchasing power has become more decentralized."</blockquote>
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As mentioned in the first part, Dropbox was one of the early champions of the "consumerization of enterprise software" movement. This paragraph is a great description of that concept. If you ever have to pitch the idea of consumerization to anyone, copy these lines. :-)<br />
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<h2>
<strong><br /></strong></h2>
<h2>
<strong>#2 – The King of Freemium</strong></h2>
<blockquote class="tr_bq">
<strong>Viral, bottom-up adoption</strong>Our 500 million registered users are our best salespeople. They’ve spread Dropbox to their friends and brought us into their offices. Every year, millions of individual users sign up for Dropbox at work. Bottom-up adoption within organizations has been critical to our success as users increasingly choose their own tools at work. We generate over 90% of our revenue from self-serve channels — users who purchase a subscription through our app or website.</blockquote>
Before reading the S1, I didn’t know if Dropbox has become somewhat more focused on enterprise sales over the years. But here you have it – it really is the <a href="http://tomtunguz.com/dropbox-s-1/">King of Freemium</a>, generating more than 90% of revenue from self-service channels.<br />
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<h2>
<strong>#3 – It’s a Mouse Hunter!</strong></h2>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigBRBjyev-3HwJPF75OhWuPQSJP8b_oINR4OtT3-7amkuKfcyOBpzaAz6RuTg3EjJENa0sijygJjjft5XsfFf5ZllmoTdXSSP-z2wPMdtrxmav66qNKvJKxnJVIXPZlEUEdplR/s1600/arpu.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="138" data-original-width="1110" height="76" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigBRBjyev-3HwJPF75OhWuPQSJP8b_oINR4OtT3-7amkuKfcyOBpzaAz6RuTg3EjJENa0sijygJjjft5XsfFf5ZllmoTdXSSP-z2wPMdtrxmav66qNKvJKxnJVIXPZlEUEdplR/s640/arpu.png" width="640" /></a></div>
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Dropbox’s ARPU is around $110 per year, confirming that the company is indeed the ultimate Mouse Hunter. It’s worth pointing out that $110 is the average revenue per <em>user</em>, not per <em>account</em>, and one account can consist of multiple users, so the company’s ARPA (which hasn’t been disclosed) is probably significantly higher. However, according to the S1, 70% of the company’s 11 million paying users are on an individual plan as opposed to a "Dropbox Business" team plan, so at least 70% of the company’s revenue does indeed come from mice.<br />
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<h2>
<strong>#4 – More than half a million $ per head</strong></h2>
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As of December 31, 2017, Dropbox had 1,858 employees. Revenue for 2017 was $1.107B. That’s $595,800 per employee. Mind blown. For comparison, according to a Pacific Crest survey among private SaaS companies, the median SaaS revenue per employee of that group of companies was $136,000 in 2016.<br />
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Salesforce.com generates a similar (actually, even higher) amount of revenue per employee, but the company is almost twice as old and has much bigger scale, so you’d expect them to be more efficient. When Salesforce had around $1B in revenue, in 2008, it had around 3,300 employees, so at that time its revenue per employee was around $327,000. Not a bad ratio at all, but Dropbox’s revenue-per-employee ratio is truly spectacular – a testament to its extremely effective and efficient bottom-up adoption driven by product virality.<br />
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<strong><br /></strong></h2>
<h2>
<strong>#5 – WTF?!</strong></h2>
<blockquote class="tr_bq">
“Although it is important to our business that our users renew their subscriptions after their existing subscriptions expire and that we expand our commercial relationships with our users, given the volume of our users, we do not track the retention rates of our individual users. As a result, we may be unable to address any retention issues with specific users in a timely manner, which could harm our business.”</blockquote>
We “<em>do not track the retention rate of our individual users”.</em> Wait, what? Did I read this right?<br />
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<h2>
<strong>#6 – A unicorn’s worth of office rent</strong></h2>
<blockquote class="tr_bq">
“In October 2017, we entered into a new lease agreement to rent office space in San Francisco, California, to serve as our new corporate headquarters. The total minimum obligations under this lease agreement are expected to be approximately $827.0 million.”</blockquote>
When I read this number for the first time, I was wondering if there’s a typo. $827 million is going to be spent on office rent? A rough calculation shows that the number isn’t as crazy as it might appear on first sight. Assuming the company currently employs around 1,500 people in San Francisco and that that number will grow to 5,000 in the coming years, and assuming it’s a 12 year lease, rent per employee per year (at 5000 employees) would be around $13,800. That’s still expensive, but not “they must have accidentally added a zero” expensive.<br />
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<h2>
<strong>#7 – I don’t understand this … is it just me?</strong></h2>
<blockquote class="tr_bq">
“As of December 31, 2017, our blended Annualized Net Revenue Retention across the entire business, including individuals and Dropbox Business customers, was over 90%.”</blockquote>
<blockquote class="tr_bq">
“We continuously focus on adding new users and increasing the value we offer to them. As a result, each cohort of new users typically generates higher subscription amounts over time. For example, the monthly subscription amount generated by the January 2015 cohort doubled in less than three years after signup. We believe this cohort is representative of a typical cohort in recent periods.”</blockquote>
If you don’t understand how to reconcile these two statements, you’re not alone. Looking at the <a href="https://www.sec.gov/Archives/edgar/data/1467623/000119312518055809/d451946ds1.htm#toc">cohort chart on page 62 of the S1</a>, you’d expect Dropbox to have a significantly negative net dollar churn rate, i.e. net revenue retention of significantly over 100%. The only scenario, in which the two statements above could be compatible, is if a user cohort’s revenue doubles during the first three years but then declines steeply, but I have no idea if that is the case. If you know or have an idea what I’m missing here, I’d love to hear it!<br />
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<h2>
<strong>#8 – Weaning off AWS</strong></h2>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB24xNJnBP7bL7luj7tOUT2yT5rOK5MFMOMj96V1smxTZD1Wh1_jqNB5vEF6XmLDm0guLm383U2jbc_XEz0VmXg4y7l6o3deS9u_5_a3av2M8doHpT_iUkKcWpuSi0UtaqyL8k/s1600/cogs.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="140" data-original-width="838" height="105" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB24xNJnBP7bL7luj7tOUT2yT5rOK5MFMOMj96V1smxTZD1Wh1_jqNB5vEF6XmLDm0guLm383U2jbc_XEz0VmXg4y7l6o3deS9u_5_a3av2M8doHpT_iUkKcWpuSi0UtaqyL8k/s640/cogs.png" width="640" /></a></div>
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Look at this. From 2015 to 2017, Dropbox increased revenue from around $600M to ca. $1.1B. During the same period, the company decreased cost of revenue from over $400M to less than $370M. In percentage terms, CoGS decreased from around 67% to around 33%. You don’t often see a company halving its CoGS percentage within two years. Either Dropbox was pretty wasteful in 2015 or they are extremely efficient now. ;-) I think it’s a bit of both.<br />
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According to the S1, the remarkable CoGS reduction was achieved primarily by closing accounts of inactive users and by moving more than 90% of all user data from AWS to Dropbox’s own server infrastructure. For what it’s worth, this also gives you a hint on the margins of AWS.<br />
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<strong><br /></strong></h2>
<h2>
<strong>#9 – Eleven 9s? </strong></h2>
<blockquote class="tr_bq">
"Our users trust us with their most important content, and we focus on providing them with a secure and easy-to-use platform. More than 90% of our users’ data is stored on our own custom-built infrastructure, which has been designed from the ground up to be reliable and secure, and to provide annual data durability of at least 99.999999999%. We have datacenter co-location facilities in California, Texas, and Virginia."</blockquote>
I thought six 9s are considered best-in-class, so I was surprised when I counted eleven 9s in this paragraph. Eleven 9s correspond with 0.00032 seconds of downtime per year, which for all practical purposes means that Dropbox can never go down. I re-read the sentence and noticed that Dropbox isn’t referring to availability (i.e. uptime) but data durability, which, as I now know, <a href="https://blog.westerndigital.com/data-availability-vs-durability/">is something else</a>.<br />
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<strong><br /></strong></h2>
<h2>
<strong>#10 - Multiple personalities?</strong></h2>
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<b>This is how Dropbox wants to be viewed:</b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_kdmBBnpKbYTVuVLseuUuhCZyTHJNv-UJcY8BIIBJbYyC2LGxqHIT5NtcNvU73T9Ox7QxOr0_R-P7hc4T8F0YMs1Ce1nn4Cu9AXimFp5uRQAJldsrCLktvnWtJKiNRx0B9OJP/s1600/g451946dsp002.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="600" data-original-width="880" height="272" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_kdmBBnpKbYTVuVLseuUuhCZyTHJNv-UJcY8BIIBJbYyC2LGxqHIT5NtcNvU73T9Ox7QxOr0_R-P7hc4T8F0YMs1Ce1nn4Cu9AXimFp5uRQAJldsrCLktvnWtJKiNRx0B9OJP/s400/g451946dsp002.jpg" width="400" /></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNtNWnPAwxt4jAn3yLylrzcjMRpKkiJOoBLKOvvKJ96aKN3e2gfmAbUjEuFNUl0aQyvvcHCMLWdh3iRVoMBHmuJK3WG_JUGNbGF0BSz-uXbd17zjr04y4IL5o_JcgDHzWteCOn/s1600/Dropbox2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="597" data-original-width="935" height="255" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNtNWnPAwxt4jAn3yLylrzcjMRpKkiJOoBLKOvvKJ96aKN3e2gfmAbUjEuFNUl0aQyvvcHCMLWdh3iRVoMBHmuJK3WG_JUGNbGF0BSz-uXbd17zjr04y4IL5o_JcgDHzWteCOn/s400/Dropbox2.png" width="400" /></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioFLA7q1JKcoktDPmwMUsS2ksMTglJZaKsKYyq-Y7fdf11gIhZPrg-C4bgY0ZlPIpkL93ZRWKbotOVyWv3cRRYZiP5dONMIfoSRDhUOjJkjLm8lruXySdJrrLgoD4_XOEV5eDw/s1600/Dropbox.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="586" data-original-width="927" height="252" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioFLA7q1JKcoktDPmwMUsS2ksMTglJZaKsKYyq-Y7fdf11gIhZPrg-C4bgY0ZlPIpkL93ZRWKbotOVyWv3cRRYZiP5dONMIfoSRDhUOjJkjLm8lruXySdJrrLgoD4_XOEV5eDw/s400/Dropbox.png" width="400" /></a></div>
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<b>This is how I view it:</b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDSbR48nwHt6bBXdYXABi6HCGQLXWO1r1KUQZRTDZfN1yW3CMLwbHAoRJM-VmFPXyX_N5tw3CIQ_yW6dQ1udS95SJxjOalIc6bNdDmd-9mjVOLHX5XjQsG5nIv9S1TFCVvrLVp/s1600/Dropbox3.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="320" data-original-width="673" height="190" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDSbR48nwHt6bBXdYXABi6HCGQLXWO1r1KUQZRTDZfN1yW3CMLwbHAoRJM-VmFPXyX_N5tw3CIQ_yW6dQ1udS95SJxjOalIc6bNdDmd-9mjVOLHX5XjQsG5nIv9S1TFCVvrLVp/s400/Dropbox3.png" width="400" /></a></div>
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<br />
If you read the S1 and take a look at Dropbox’s website, it becomes clear that the company wants to become much more than just a service that takes care of file storage and synchronization behind the scenes. They don’t want to be just an icon in your file system, they want to <em>unleash the world’s creative energy by designing a more enlightened way of working </em>(Dropbox’s mission statement). <br />
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That makes perfect sense, as being a “background service” might ultimately prove not to be a defensible, high-margin business. I’m somewhat skeptical if their (relatively) new “Paper” product will become a success. But with 500 million registered users, 11 million paying users and 300,000 paying work teams, the company has time to figure it out.<br />
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-43666516669688571612018-05-04T10:20:00.000+02:002018-05-13T00:31:24.040+02:00Dropbox, the ultimate Mouse HunterI’m late to the party here, I know. Dropbox went public a bit more than a month ago and I’ve finally had a chance to take a close look at<a href="https://www.sec.gov/Archives/edgar/data/1467623/000119312518055809/d451946ds1.htm"> the company’s S1</a>. I’ll be sharing a few specific observations from the S1 review, but let’s start with some more general thoughts about the company.<br />
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<h3>
<strong><i>The mighty king of Freemium</i></strong></h3>
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Like Zendesk, Yammer, and a few other SaaS companies that were all founded around 2007-2008, Dropbox was one of the early champions of the "consumerization of the enterprise" movement. In contrast to Zendesk (and I think, Yammer), which eventually moved upmarket and now generates<a href="https://www.fool.com/investing/2017/08/04/large-customers-drive-growth-for-zendesk.aspx"> an ever-increasing percentage of revenues from larger customers</a>, Dropbox is still getting most of its revenues from individual users and small teams. The company hasn't disclosed how much revenue it is generating from larger companies, but according to its S1 filing, a staggering 70% of its 11 million paying users are on an individual plan as opposed to a "Dropbox Business" team plans. More than 90% of its users are acquired via self-service channels, presumably driven in large part by the inherent virality of the product. These characteristics make Dropbox the<a href="http://tomtunguz.com/dropbox-s-1/"> "King of Freemium"</a>, as Tomasz put, or the ultimate <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">“Mouse Hunter”</a>.<br />
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And what an almighty King it is! Dropbox was the<a href="https://twitter.com/drewhouston/status/826151078316027906"> fastest SaaS company ever to hit $1B in ARR</a>. As every aspiring SaaS entrepreneur knows, getting a hundred million dollars in ARR within around eight years is incredibly hard and extremely rare. Getting to more than <em>one</em> <em>billion</em> within the same timeframe is completely nuts. If the improbability of reaching a $1B valuation is epitomized by a unicorn, getting to $1B in SaaS revenues within eight years is as unlikely as seeing a unicorn with three heads.<br />
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<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.blogger.com/video.g?token=AD6v5dy9ohBD44NgYoo540xb-OvvsQo59kx_KzGOrfwPfXymMypMSsVsFyyauPkq_7ydW2WlNyV0Tfwgy1U' class='b-hbp-video b-uploaded' frameborder='0'></iframe></div>
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<i style="font-size: 14px;">Dropbox is one of the very, very few companies in the top left corner of the LTV/CAC chart.</i></div>
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<h3>
<strong><em>A three-headed unicorn</em></strong></h3>
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So what is it that made Dropbox beat all odds? I believe that no single factor alone can explain a success of this magnitude. Instead, I think that the right team has to hit the right opportunity at the right time. Call it the positive equivalent of a perfect storm.<br />
More specifically, here are some factors that I think contributed to Dropbox's success, in no particular order:<br />
<strong><strong><br /></strong></strong>
<b>1. Timing</b><br />
As consumers tend towards using more devices over time, they’ll experience a bigger need for a solution that synchronizes files across all of their devices. Until 2005 or so, most people used only one or maybe two devices to work with their files: a desktop PC and/or a laptop. Dropbox was founded in 2007, the year the iPhone was launched and just when the move to a multi-device world started to become inevitable. Dropbox also benefited from an ever-increasing number of remote workers who need easy access to their company's files. According to a 2016 study by Deloitte that is mentioned in the S1, 30% of full-time employees primarily work remotely.<br />
<strong><br /></strong>
<strong>2. Product</strong><br />
Dropbox managed to beautifully solve a very difficult problem. It might look like a simple product on the surface, but from handling versioning conflicts to building deep integrations with different operating systems to ensuring secure and fast access to files, it required solving a number of hard technology problems. I remember that before switching to Dropbox, I used another piece of software to sync files across two computers. It was pretty messy. With Dropbox it <i>just works.</i><br />
<strong><br /></strong>
<strong>3. Virality</strong><br />
While it's possible to use Dropbox just by yourself, my guess is that at some point, most users use Dropbox to share files with one or more other users. It's this built-in virality that allowed Dropbox to grow at a pace that no other B2B SaaS company has seen before. As if this wasn't enough, Dropbox also had a famous two-sided referral program that augmented the inherent virality with additional referral incentives.<br />
<strong><br /></strong>
<strong>4. Team</strong><br />
I don't know the founders of Dropbox, but looking at the quality of the early product and their referral program, it's clear that the founding team combined excellent product and tech skills with a strong growth mindset. In any case, the results speak for themselves – there's no question that a remarkable team must have been at work here.<br />
<strong><em><br /></em></strong>
<br />
<h3>
<strong><em>Dark clouds on the horizon?</em></strong></h3>
<br />
As much as I love Dropbox – the product and the company – I'm not entirely sure about the company's long-term prospects. Dropbox's one big weak spot, in my opinion, is that the product is almost UI-less. While you can access your files using Dropbox's (simple) Web app, there's very little need for it. We use Dropbox for all of our files at Point Nine and I have it running on four devices, but Dropbox does its magic almost entirely in the background. That makes me think that Dropbox is much less sticky than other SaaS products, e.g. workflow tools that require training. I could imagine that if a company's IT department decides to switch the file storage and sharing provider for its entire workforce overnight, most people wouldn't even notice it. In contrast, imagine the outcry that would ensue if you took away Zendesk from a support team or if you tried to get your development team off Slack.<br />
<br />
Would I switch to another provider to save $20 a year? No, not worth the hassle. Would I consider moving all files to Google Drive if it's significantly cheaper and if a tighter integration with GMail, Google Calendar and Google Docs offers more and more benefits? Yes. (Interestingly Google Drive’s “Quick Access” feature is already using e.g. information from your calendar to predict which file you are likely to need at which point in time.)<br />
<br />
I think the company has recognized this issue. Two and a half years ago they launched <a href="https://www.dropbox.com/paper">"Paper"</a>, a collaborative document-editing app, presumably to get more "face time" with its customers and to own a bigger part of the value creation chain. However, I know almost nobody who uses Paper and the company doesn't disclose any usage numbers, so my guess is that it's not a big success so far.<br />
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Don't get me wrong, more than $1B in ARR and 500 million registered users are an incredible asset. The King of Freemium won't be dethroned any time soon. But for what it’s worth I didn't buy the stock yet :-)<br />
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<i><a href="http://christophjanz.blogspot.com/2018/05/10-observations-from-dropboxs-s1.html">Update: Here is part 2 of this post.</a></i><br />
<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-20057865078296568412018-02-18T17:10:00.004+01:002018-02-18T17:10:43.791+01:00Quick thoughts about Blogger and Medium. Plus: The 2018 SaaS Funding Napkin!I usually use this blog when I write new posts. Occasionally I re-publish selected posts on our <a href="https://medium.com/point-nine-news">Medium channel</a>. Lately, however, I've observed myself publishing on Medium first, for the simple reason that the authoring experience is much better on Medium than on Blogger, especially when you're including a lot of pictures. <div>
<br /></div>
<div>
<b>What can we learn from this?</b></div>
<div>
<ol>
<li>You <i>can</i> lure users away from an old product by offering a <i>much</i> better UX. A bit better isn't enough to get over inertia and to offset switching costs. It has to be <i><a href="https://medium.com/@sarahtavel/how-to-build-an-enduring-multi-billion-dollar-business-hint-create-a-10x-product-recast-3527df2b8fcb">10x better and cheaper</a></i>, like Sarah Tavel said. (When I say "10x better" I don't mean it literally but figuratively because in most cases I don't know how the superiority of one user experience over another can be measured quantitatively.)</li>
<li>If the incumbent benefits from network effects, it's <i>much</i> more difficult. A complete migration from Blogger to Medium would be very painful for me because like you, most of my readers are here – and many of you are reading the blog using an RSS subscription or an email subscription, or you've bookmarked <a href="http://www.theangelvc.net/">www.theangelvc.net</a>, all of which would cause friction if I decided to migrate.</li>
<li>At some point I have to switch to a blogging platform that has <i>not</i> been built in the last millennium. :-) My current thinking is to switch to a hosted Wordpress provider, use a minimalistic Medium-like template, and find a solution that doesn't require readers to switch their RSS/email subscriptions. Let me know if you have any thoughts. :)</li>
</ol>
<div>
Anyway, the <i>actual</i> reason for this post is that I've just published a series of blog posts, along with the 2018 version of the SaaS Funding Napkin, on Medium, and I wanted to make sure that you don't miss it. </div>
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<br /></div>
<div>
<b>Here you go:</b></div>
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<div>
Part 1: <a href="https://medium.com/point-nine-news/what-does-it-take-to-raise-capital-in-saas-in-2018-204d0a46cb23">What does it take to raise capital, in SaaS, in 2018?</a></div>
<div>
Part 2: <a href="https://medium.com/point-nine-news/the-top-3-things-investors-are-looking-for-in-saas-startups-f445f9a7ff46">The top 3 things investors are looking for in SaaS startups</a></div>
<div>
Part 3: <a href="https://medium.com/point-nine-news/the-saas-funding-napkin-2018-ea1b168a5b78">The SaaS Funding Napkin 2018</a></div>
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You can also check out the napkin on <a href="https://www.producthunt.com/posts/saas-funding-napkin-2018">Product Hunt</a>, and if you're interested in the physical, real version of the napkin, <a href="https://pointninecap.typeform.com/to/NvAdFu">fill out this short Typeform</a>!</div>
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-41545818233308920772017-12-05T00:27:00.000+01:002017-12-05T00:32:06.872+01:00We’re looking for an Associate<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCXxfWA5tudhb3uKogRn4_qpkG_1rD2Gl8owlxPYuol44ex5ZGecqeL8QY4MdhwAm5Zc_D_oaWahhSNW0VQGjKLnXfIGtpjuy-Fi1xEbYCjGpAYYLZl0zTtGraZN01afEZccpu/s1600/fabian-blank-78637.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1067" data-original-width="1600" height="212" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCXxfWA5tudhb3uKogRn4_qpkG_1rD2Gl8owlxPYuol44ex5ZGecqeL8QY4MdhwAm5Zc_D_oaWahhSNW0VQGjKLnXfIGtpjuy-Fi1xEbYCjGpAYYLZl0zTtGraZN01afEZccpu/s320/fabian-blank-78637.jpg" width="320" /></a></div>
I’m very excited to announce that we’re looking for a new Associate. In all modesty, I think that for a young, smart person who’s passionate about startups and technology, an Associate role at Point Nine is one of the fastest ways to learn, build your network, and advance your career. Case in point: Rodrigo, who started as an Associate four years ago, is now a <a href="https://medium.com/point-nine-news/meet-rodrigo-part-time-geek-spaniard-abroad-partner-at-point-nine-ab42031dfdd9">Partner at Point Nine</a>; Fabian is running his <a href="http://asgard.vc/">own fund</a>; Nicolas became a <a href="https://www.forbes.com/pictures/mfg45jmhh/nicolas-wittenborn-26/#53ba25636d7b">“30 under 30”</a> and is now <a href="https://www.insightpartners.com/team/nicolas-whittenborn/">VP at Insight</a>; and <a href="https://twitter.com/ockenrock">Mathias</a> is now GM Germany at Uniplaces.<br />
<br />
<a href="http://christophjanz.blogspot.com/2016/04/truffle-pig-reloaded-point-nine-is.html">As I wrote last time</a> when we were adding an Associate to our team, I'm pretty sure that it took me more than 10 years to get the expertise and network which you'll get during three years in this job.<br />
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If you’re interested, <a href="http://unbouncepages.com/pncassociate2017/?referrer=cjblog"><b>here are all the details</b></a>. If you know somebody who could be a great fit, please pass on the link or <a href="mailto:christoph@pointninecap.com">let me know</a>. Thank you very much in advance!<br />
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PS: As you may or may not know, the Associate role at Point Nine has historically been called <a href="http://unbouncepages.com/truffle-pig-2/">“Truffle Pig”</a> – because just like a truffle pig is digging up the best truffles from the ground, we as an early-stage VC try to find the best startups among a large number of potential investments. I still kind of the like that analogy, but all good things must come to an end. For now, we’ll just call the new position “Associate” but if you have a creative idea for something funnier I’m all ears!<br />
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-14337059154929226352017-12-01T01:31:00.000+01:002019-09-17T15:15:51.831+02:00How public SaaS companies report churn, and what you can learn from them<div class="separator" style="clear: both; text-align: center;">
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While doing some research for another post I just stumbled on <a href="https://www.key.com/corporate/industry-expertise/saas-resources.jsp">this excellent overview</a> from Pacific Crest on the churn rates of publicly listed SaaS companies. I’ve seen posts with churn benchmarks of public SaaS companies before, but this one is by far the most comprehensive collection I’ve seen and I think it’s very useful.<br />
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What’s maybe even more interesting than taking a look at the numbers themselves is to see how different companies define churn (or the inverse, retention). Since there is no official US-GAAP definition of churn or retention, different companies use different ways to measure and report these metrics. And because public companies are under the scrutiny by the SEC, any non-GAAP metric they report must be accompanied by a razor-sharp definition.<br />
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Most public SaaS companies report churn in the form of their dollar-based net retention rate, i.e. the inverse of net MRR/ARR churn (as opposed to account/logo churn), which compares the recurring revenue from a set of customers across comparable periods. Here’s a particularly nice description of this metric, coming from AppDynamics:<br />
<br />
<blockquote class="tr_bq">
“To calculate our dollar-based net retention rate for a particular trailing 12-month period, we first establish the recurring contract value for the previous trailing 12-month period. This effectively represents recurring dollars that we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without any expansion or contraction. We subsequently measure the recurring contract value in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period. Dollar-based net retention rate is then calculated by dividing the aggregate recurring contract value in the current trailing 12-month period by the previous trailing 12-month period.”</blockquote>
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If you take a look at the <a href="https://www.key.com/corporate/industry-expertise/saas-resources.jsp">data assembled by Pacific Crest</a> you’ll see that many companies use the same logic with minor variations. For example, some companies look at the trailing 12 month period, while others look at calendar years, quarters, or months.<br />
<br />
Some companies exclude customers that do not meet certain criteria, for example:<br />
<br />
<ul>
<li>Box includes only customers with $5k+ ACV and annual contracts</li>
<li>Alteryx considers only customers which have been paying customers for at least one quarter.</li>
<li>AppDynamics includes only customers who have been paying customers for at least one year.</li>
<li>Zendesk excludes customers on the starter plan.</li>
</ul>
<br />
This makes perfect sense: It tells you what type of customer the company is focused on, and you can see the retention metrics in regards to this type of customer.<br />
<br />
Other companies use variations that I think are questionable. Some companies report customer count-based retention, which I think is much less interesting than dollar-based retention. Some report renewal based on the number of seats; one company, Fleetmatics, reports churn based on the number of vehicles under subscription. But the majority of companies does report dollar-based net retention rate in a way that allows for an apples-to-apples comparison across companies.<br />
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<b>What can you learn from this?</b><br />
<br />
(1) <b>There is not one perfect definition of churn that is right for every SaaS company.</b> Depending on the specifics of your business you might want to:<br />
<br />
<ul>
<li>focus on monthly, quarterly or annual retention</li>
<li>exclude customers that churned within the first, say, two months</li>
<li>include only customers that represent the core of your business, e.g. customers above a certain ACV</li>
</ul>
<br />
(2) Having said that, <b>dollar-based net retention is the way to go</b>. You should stay close to the definition above and tweak it with care.<br />
<br />
(3) There may not be one perfect way to define and measure churn, but <b>there sure are lots of ways to get it wrong.</b> :) One classic example is to calculate a monthly churn rate and to mix in annual plans with monthly plans. By including customers on annual plans who aren’t up for renewal in the period you’re measuring you’re underestimating your true churn rate.<br />
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(4) Whatever metric you choose, <b>make sure that you use it consistently and that you have a razor-sharp definition</b>.<br />
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Bonus tip: Whenever you report numbers, be it in monthly updates or in a Board deck, include footnotes or an appendix with definitions of every metric that you’re reporting. I can almost guarantee you that this will save you ten minutes of discussion with your VC Board member(s) who (understandably) want to make sure that they understand the numbers you’re showing them. :)<br />
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<i>Update / September 17, 2019:</i> Another bonus tip, we recently invested in a company called <a href="https://www.brightback.com/?utm_source=christophjanz" target="_blank">Brightback</a> that helps you reduce churn by making it easy to implement sophisticated, personalized "churn deflection" pages and workflows. Have a look! :)<br />
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-63798273757025067342017-11-21T01:24:00.002+01:002017-11-21T01:24:57.589+01:00Getting feedback from your BoardAfter a <a href="http://www.clio.com/">Clio</a> Board Meeting last week I received the following email from Jack Newton, the company's amazing co-founder & CEO. <br />
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<i>Hi everyone,<br /><br />I'd like to experiment with requesting some 1:1 feedback on our board meetings. Please take 5 minutes and provide feedback through this Typeform:<br /><br /><a href="https://xxx.typeform.com/xxx...">https://xxx.typeform.com/xxx...</a><br /><br />Cheers,<br /><br />Jack</i><br />
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I thought this was a really great idea and worth sharing here. I removed the URL from Jack's Typeform but rebuilt it quickly so that you can check it out:<br />
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<div class="typeform-widget" data-url="https://pointninecap.typeform.com/to/lQTISn" style="height: 500px; width: 100%;">
</div>
<script> (function() { var qs,js,q,s,d=document, gi=d.getElementById, ce=d.createElement, gt=d.getElementsByTagName, id="typef_orm", b="https://embed.typeform.com/"; if(!gi.call(d,id)) { js=ce.call(d,"script"); js.id=id; js.src=b+"embed.js"; q=gt.call(d,"script")[0]; q.parentNode.insertBefore(js,q) } })() </script> <br />
<div style="color: #999999; font-family: sans-serif; font-size: 12px; opacity: 0.5; padding-top: 5px;">
powered by <a href="https://www.typeform.com//?utm_campaign=lQTISn&utm_source=typeform.com-8505-Pro&utm_medium=typeform&utm_content=typeform-embedded-poweredbytypeform&utm_term=EN" style="color: #999999;" target="_blank">Typeform</a> </div>
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If you're not getting feedback from your Board members you're missing out on something. Preparing and holding Board meetings is a big time investment, and making them really effective <a href="http://christophjanz.blogspot.com/2011/08/bored-meetings-vs-board-meetings.html">isn't easy</a>. So you should try to get as much value out of them as possible.<br />
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Sending out a post-meeting Typeform is, of course, not the only way to get feedback: In some Boards that I'm a member of we sometimes do an executive session between the CEO and the directors. Sometimes I try to summarize my thoughts at the end of the meeting, sometimes I do it in a followup email after the meeting.<br />
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But doing it with a Typeform might help you ensure that you'll be getting feedback more consistently: after each Board meeting, from each director. I think this format might also help you get more candid feedback because not everyone is good at delivering honest feedback in a meeting. As a side benefit, you'll start building an archive of feedback that you can revisit later. No rocket science, but sometimes little things can make a difference, and I'm curious to see how this one will pan out.<br />
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Thanks to <a href="https://twitter.com/jack_newton">Jack</a> for giving me permission to share this here (and thanks <a href="http://avc.com/2017/03/board-feedback/">Fred Wilson</a>, who, as I've learned from Jack, inspired Jack on this topic).<br />
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-53587683339170194522017-11-18T14:07:00.002+01:002023-07-21T15:53:08.546+02:00Unsure how much you should pay yourself? Check out this Founder Salary Calculator.<i>[July 21, 2023]<br />There’s a <a href="https://medium.com/point-nine-news/how-much-should-you-pay-yourself-97df8b1a27e0">newer version of this post</a>, including an <a href="https://docs.google.com/spreadsheets/d/11JYrKUFpDbjlpToiK2C7aIJcCcswWjufiPDzIajGw5A/edit?usp=sharing">updated calculator</a>.</i><div><br /></div>Founder salaries are not a topic I’ve had to spend a lot of time with so far. I usually just “OK” them, since the founders we are working with are all super reasonable people who carefully weigh how much they need against the interests of the company – their company. But sometimes founders ask me for a suggestion or some guidance because they are uncertain as to what is fair, and so I thought it might be useful to create a simple model.<br />
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<a href="https://docs.google.com/spreadsheets/d/15xRVMp_Ng-Sjfh9pDZb1X1d66Elv9PTqPzvWEH7XOXI/edit?usp=sharing"><strong>Here it is</strong><strong>.</strong></a><br />
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The model calculates the founder salary based on three drivers: stage, family situation, and location.<br />
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<strong>Stage</strong><br />
<br />
Unless you’re in the fortunate position to generate revenues almost from day 1 or to raise a sizable seed round right at the start you’ll probably not be able to pay yourself any salary at all, at least in the first few months, for the simple fact that the company doesn’t have any money to spend. If you raise a small angel or friends & family round, you’ll probably want to spend it on other things than founder salaries. Once you’ve raised a bigger seed round and/or you start to generate revenues, that changes and you can pay yourself a modest salary.<br />
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In the calculator, I’ve assumed that the “entry salary” for a Berlin-based founder who doesn’t have kids is $50,000. I’ve then assumed that that amount increases to $75,000, $95,000 and $115,000 when you reach funding and revenue milestones that roughly correspond with a Series A, Series B and Series C round, respectively. I don’t think founders should get salaries that make them rich, but as soon as the company can afford it the founders should get enough so that they don’t have to be worried about how to make ends meet all the time. And if a little more allows them to outsource some errands and chores after a 100-hour-work-week I’m all for it!<br />
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<strong>Family</strong><br />
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It might surprise you to hear this from a venture capitalist, but my approach to founder salaries is a little communistic: I think founder salaries should not be based on performance alone but should also take into account what the founder needs. If that means that one founder gets more cash than the others because in contrast to them he or she has a family to take care of, that’s fine with me. A founder’s cash compensation doesn’t reflect the value which she contributes to the company anyway, so who cares if one of them gets a little more than the others. <br />
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My model, therefore, assumes that for each kid you add $10,000 (multiplied by the location factor, more on that soon). Whether this is the right amount is of course debatable, and there can be other aspects besides having children that need to be taken into account.<br />
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The “need-based” approach can, of course, go both ways: if a founder had a sizable exit already, he may want to forgo his salary or reduce it to a symbolic amount, at least in the first few years. I did that at my last startup, Pageflakes, and thought that besides saving the company some money it can also have a positive impact on the company culture if people know that the founder’s interests are 100% tied to the company’s success.<br />
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<strong>Location</strong><br />
<br />
The third factor that I’ve included is location. I’ve defined Berlin as 1.0x and have assumed that in Paris, London and San Francisco, you’ll have to pay yourself 1.3x, 1.5x and 1.8x as much in order to have a similar standard of living. These ratios are roughly in line with the data published on this <a href="https://www.numbeo.com/cost-of-living/">website</a>. If you want to find out the ratios for other cities, take a look.<br />
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<strong>Notes</strong><br />
<br />
<ul>
<li>The numbers in the model reflect what I think is market and fair based on the data points that we have and some industry benchmarks that we were able to get. However, our data set is quite limited and the numbers produced by the calculator should by no means be taken as the ultimate truth. <strong>If you disagree with my assumptions or have seen different numbers in the market I’d love to hear from you!</strong></li>
<li>I saw a <a href="https://thenextweb.com/insider/2014/01/14/salary-founder-favorite-startup-get-probably-high-one/">study</a> according to which founder salaries are much lower. According to this data source, 75% of Silicon Valley based founders pay themselves less than $75,000, with 66% paying themselves less than $50,000. Based on these numbers, even for companies that have raised more than $10M the average salary is only $81,700. This looked odd to me, and maybe the difference is due to the fact that the study is three years old. I ignored this data source for now, but again, suggestions and input are very much appreciated.</li>
<li>The model assumes that the founder gets a fixed salary with no bonus. I’m not strongly against including a bonus component in a founder’s package, but I think it’s usually not necessary. If you own a big chunk of equity, I don’t think you’ll need a performance bonus to be motivated and rewarded.</li>
<li>The model doesn’t differentiate between the founding CEO, tech founder and other roles. In the first couple of years it’s usually not necessary to differentiate based on the founder’s role because everyone in the founder team carries a similar load. At a later stage, when the company has a bigger leadership team, it makes sense that the CEO gets more than the other founders. The numbers in the model are calibrated for founder CEOs, so you may want to reduce the amounts for other founders at the Series B or C stage.</li>
<li>The calculator shows the results for the various stages and locations simultaneously, so you can easily compare the numbers side-by-side. The number of kids, however, needs to be entered (column I). If you enter a different value here, the numbers in column K and column P will be updated accordingly. Showing the results for various numbers of kids simultaneously would have added a lot of additional permutations and would have made the sheet very large.</li>
<li>The blue numbers are input variables and you can change them if you’d like to adjust the model. The brown numbers can be changed, too, but aren’t used as inputs for the calculation. To play around with the numbers please make a copy (File > Make a copy).</li>
</ul>
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-38698630168104583662017-10-04T00:03:00.000+02:002017-10-05T20:45:45.389+02:00Knowing when to scale (and how to prove that you can do it)When you’re talking to investors about a Series B, Series C or later round, one of the questions that will inevitably come up is “What are your CACs?”. It sounds like a simple question, but from the question of what costs to include and the right way to account for organic traffic to the pandora box of <a href="http://christophjanz.blogspot.com/2014/06/learning-more-about-that-other-half_5.html">multi-touch attribution</a>, there are lots of devils in the details.<br />
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What's more, the real question is not "What are your CACs?" but <i>"What will your CACs be if you invest $10-20 million in sales & marketing?"</i>. It’s hard enough to calculate historic CACs for different acquisition channels with a high degree of accuracy. It’s much harder to predict future CACs at bigger scale.<br />
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And yet it shouldn’t come as a surprise that later-stage investors are so focused on this question. When you’re raising a Series B or later round, you’ve achieved Product/Market Fit (which is hard to define, <a href="http://christophjanz.blogspot.com/2017/07/wtf-is-pmf-part-2-of-2.html">see me attempt here</a>) and you’ve got what Jason M. Lemkin calls <a href="https://www.saastr.com/how-youll-know-youve-got-first-traction-in-saas-the-moment-when-youve-got-something-special/">“Initial Traction”</a> and <a href="https://www.saastr.com/how-youll-know-youve-got-first-traction-in-saas-the-moment-when-youve-got-something-special/">“Initial Scale”</a>. At that point, the biggest thing standing between you and building a $100M+ business is <i>finding scalable and profitable customer acquisition channels</i>. Obviously you still have to overcome lots of other challenges along the way, but if you’re at $5-10M in ARR and you are confident that you’ve found scalable sales and marketing channels you are in an excellent (and rare) spot.<br />
<br />
So how do you know if your customer acquisition channels will scale, that is, if a 10x increase of your sales and marketing spend will lead to a 10x increase in new customers? Consumer Internet startups are sometimes in the fortunate position to have found a profitable customer acquisition channel that offers huge potential for expansion. If ads on TV, YouTube or Facebook work for you, you might be able to increase your spending by 10x (and maybe much more) because these platforms have such a gigantic reach. In the B2B SaaS world this is very rare. Mass-market advertising won’t work because there’s way too much ad wastage, and targeted ads usually don’t give you the volume to easily 10x your spend.<br />
<br />
Without a careful keyword volume analysis, being able to profitably spend $10k a month on AdWords doesn’t mean much in regards to your ability to spend $100k a month. If you spend small amounts on AdWords you will by definition (AKA by algorithm) capture the lowest-hanging fruits. As you’re trying to spend more, prices will go up. You might be able to offset the price increase by optimizing your campaigns, landing pages, onboarding, etc, but don’t take it as a given.<br />
<br />
The underlying problem is that the existing “hot demand” for your product – people who are actively looking for a solution – is usually quite limited. The good news is that the amount of “lukewarm demand” – companies that would benefit from your product but aren’t aware of it yet – is usually much larger. That’s why content marketing is so critical in SaaS: it allows you to capture leads at a much earlier stage of the discovery process. But scaling up your content marketing by 10x is not as straightforward as simply 10x-ing your ad budget.<br />
<br />
<b>So how do you know, in B2B SaaS, if you’ve found scalable acquisition channels?</b><br />
<br />
Nothing is completely certain here, but one great sign that should give you a lot of confidence is if you can hire new salespeople and the new hires (once they’re ramped up) are hitting their quota. If you add two AEs, add another two, and then another two, and most of them are hitting quota it shows that you’re able to increase the amount of high-quality leads. If that wasn’t the case, your growing sales team would quickly start fighting for the best leads and some of your salespeople wouldn’t be able to hit their quota any longer. Equally important, it also shows that you’ve managed to industrialize the sales process to a certain extent. Firstly, it doesn’t take the founders or superstar salespeople to sell your product, it can be sold by “normal” people. And second, you’ve managed to attract the right people, to set up the right processes and infrastructure and to create the right incentive structure and culture that is required to make a sales team successful.<br />
<br />
Besides a growing, successful sales team, there are a few other factors that you can look at when you’re trying to decide if it’s time to put the pedal to the metal:<br />
<br />
<b>1. Are you able to make outbound sales work?</b><br />
Doing outbound at reasonable CACs is usually <i>very</i> hard because you’re dealing with lots of unqualified leads. It requires lots of persistence from every AE and your sales leader as well as a strong commitment from the founders, since a serious attempt to make outbound work can cost a lot of money and time. The beauty of outbound sales is that if it works for you, you may have found a highly scalable customer acquisition channel: emailing or calling every single target customer in the world will keep your sales team busy for a while. :)<br />
<br />
<b>2. Have you managed to increase your SEM budget consistently and significantly without negative effect on CACs? What is your impression share, and how large is the search volume that you can still tap into?</b><br />
As mentioned above, past performance in scaling an SEM budget from A to B alone is not a reliable indicator of future performance to scale from B to C. But in combination with a thorough analysis of the relevant search volume it can be a relevant data point.<br />
<br />
<b>3. Have you built a content marketing “machine” that consistently generates more leads month-over-month? </b><br />
If you can consistently increase inbound/content leads for some time, it means that you’ve found your narrative, or “North Star”; started to build content distribution channels; and managed to attract the right marketing people and make them effective. (<a href="https://medium.com/point-nine-news/inbound-marketing-a-saas-startup-journey-429aa4b6a7ae">Check out this great post</a> from my colleague Clément for much more about this.)<br />
<br />
If there are other aspects that you’re looking at to decide if you’re ready to scale, I’d love to hear about them in the comments below!<br />
<br />
<i>Thank you Rodrigo and Janis for reviewing a draft of this post and the valuable feedback.</i><br />
<i><br /></i>
<i><br /></i>Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-19436936473715800392017-08-25T12:18:00.000+02:002017-08-25T12:18:40.077+02:00A sneak peek into Point Nine's investment thesis<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIRGpSlB23sGpgII7llvfZSunWFgnNFW-Qov9yNFD1p_zGQvHNQSNeMp7bVFliw9H1iUY6NyVZmlo3QD2ZW9xt1PizUWto0o3udZSjUWF-8ST4aaLh7x69b1xgm65dAjYQOC2A/s1600/Ohne_Titel_2.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="450" data-original-width="1009" height="142" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIRGpSlB23sGpgII7llvfZSunWFgnNFW-Qov9yNFD1p_zGQvHNQSNeMp7bVFliw9H1iUY6NyVZmlo3QD2ZW9xt1PizUWto0o3udZSjUWF-8ST4aaLh7x69b1xgm65dAjYQOC2A/s320/Ohne_Titel_2.png" width="320" /></a></div>
Over the last couple of weeks and months we spent some time putting our investment thesis on paper. The purpose of this exercise was to challenge and discuss our implicit assumptions and to get everyone on our team aligned on what kind of investments we seek.<br />
<br />
One of the things that being very clear about our investment focus helps with is getting to “no” faster. If that sounds pessimistic, remember that we see thousands of potential investments every year but can only do 10-15 of them. Just like it’s crucial for sales teams to have clear qualification and disqualification criteria, it’s important for us to focus our time on “higher probability deals”. That means we’ll have to be able to quickly pass on a large number of deals that are likely not a good fit for us. Our “filter” is of course not perfect, so we’ll inevitably pass on lots of great companies, some of which will end up in our growing <a href="http://christophjanz.blogspot.com/2014/12/a-toast-to-all-great-ones-that-weve.html">anti-portfolio</a> – but there aren’t enough hours in the day to take a close look at each company that we see.<br />
<br />
A fast decision process is also important for founders. As we’ve learned <a href="http://christophjanz.blogspot.it/2015/10/what-sucks-about-fundraising.html">from this survey</a>, being left in the dark is the single most important reason why fundraising often sucks for founders. We will obviously never be able to make decisions based on a simple algorithm, if only for the fact that the founding team remains the most important of all criteria. But anything that helps us streamline our decision making process is welcome.<br />
<br />
Once the document is in a publishable form we will post it. Bear with us for a little while as we’re polishing the document a bit to make it more self-explanatory and to remove the worst typos. ;-) In the meantime, here’s a sneak preview.<br />
<br />
<h3>
<strong><u>We will continue to focus on two business models: SaaS and marketplaces</u></strong></h3>
<strong><br /></strong>
<strong>SaaS</strong><br />
<br />
<ul>
<li>We use a broad definition of SaaS. Usually the first “S” stands for “software”, but sometimes it stands for “something”, e.g. a combination of <a href="https://medium.com/point-nine-news/haas-an-investment-thesis-for-hardware-startups-e3500c8d7007"><strong>software and hardware</strong></a> or <strong>software and data</strong>.</li>
<li>We’re interested in <strong>horizontal</strong> and <a href="http://christophjanz.blogspot.com/2013/04/ideas-wed-like-to-invest-in-industry.html"><strong>vertical SaaS</strong></a>. What counts is that the startup is aiming to solve a big enough problem for a large enough number of potential customers in order to build a big business. As a rule of thumb, we’re looking for markets that consist of at least 3,000 whales ($1M ACV), 30,000 elephants ($100k ACV), 300,000 deer ($10k ACV) or 3M rabbits ($1k ACV). <sup>1</sup></li>
<li>We’re equally interested in companies targeting <strong>SMBs</strong> (AKA rabbit and deer hunters) and companies targeting <strong>enterprises</strong> (AKA elephant and whale hunters). What’s important is the right founder/market fit. For companies targeting very small businesses (AKA mice and rabbit hunters) we want to see the <a href="http://christophjanz.blogspot.com/2016/12/what-were-looking-for-in-saas-in-2017.html"><strong>potential for viral distribution</strong></a>.</li>
<li>We’re looking for companies that we think can build a <a href="http://christophjanz.blogspot.com/2016/12/what-were-looking-for-in-saas-in-2017.html"><strong>10x better product</strong></a> and/or <strong>drive a paradigm</strong> shift in the industry. <sup>2</sup></li>
<li>We want to invest in companies that can eventually build moat e.g. by becoming a<strong> system of record</strong> or a <a href="https://news.greylock.com/the-new-moats-53f61aeac2d9">“</a><a href="https://news.greylock.com/the-new-moats-53f61aeac2d9"><strong>system of intelligence”</strong></a>; by building a <strong>large data set</strong> that in combination with machine learning translates into a superior product; by building a <strong>platform</strong>; or by becoming a <a href="https://medium.com/point-nine-news/an-overview-of-the-growing-saas-enabled-marketplace-ecosystem-b4f5314356e5"><strong>SaaS-enabled marketplace</strong></a>.</li>
<li>With very few exceptions in areas like accounting, we’re looking for companies that have the potential to <a href="https://medium.com/point-nine-news/us-is-a-must-if-you-run-a-saas-startup-a63681c6efc2"><strong>win the US market</strong></a>.</li>
<li>We’re looking for SaaS companies that have the potential to <a href="http://christophjanz.blogspot.com/2015/03/how-fast-is-fast-enough.html"><strong>get to $100M in ARR within 7-8 years</strong></a> and to $250-300M ARR within another 2-3 years.</li>
</ul>
<br />
<strong>Marketplaces</strong><br />
<br />
<ul>
<li>Like in the case of SaaS, we use a broad definition for marketplaces. For us, a marketplace is a <strong>digital platform that brings two or more parties together and enables them to “transact”</strong>. The object of the transaction can be a physical product, a digital product, a service, or in some cases a piece of information or knowledge.</li>
<li>We look for startups that leverage marketplace dynamics to create <strong>unique user experiences in fragmented markets</strong>, with the potential to develop a moat through <strong>network effects</strong>.</li>
<li>We believe that marketplace platforms will continue to emerge in the most unexpected of places and in the most unexpected of forms. They will continue to <strong>transform entire industries</strong>.</li>
<li>We are open to all of C2C, B2C, B2BC and other types of marketplaces. We are particularly excited about <strong>B2B marketplaces </strong>and<strong> “</strong><a href="https://medium.com/point-nine-news/an-overview-of-the-growing-saas-enabled-marketplace-ecosystem-b4f5314356e5"><strong>SaaS enabled marketplaces</strong></a>”<a href="https://medium.com/point-nine-news/an-overview-of-the-growing-saas-enabled-marketplace-ecosystem-b4f5314356e5">.</a></li>
<li>We are trying to identify platforms able to become <strong>international leaders</strong>. Thus, we will typically look for early proof of ability to operate in <a href="https://medium.com/point-nine-news/global-vs-multi-local-startups-83f38394695b">more than one country or globally</a>.</li>
<li>We are looking for <b>early signs of liquidity. </b><sup>3</sup></li>
<li>We look for founding teams with <strong>strong commercial sense</strong>.</li>
<li>We think that <strong>blockchain technologies</strong> have the the potential to disrupt many marketplace models as we know them today; we will be <a href="https://medium.com/point-nine-news/will-blockchain-s-eat-the-marketplace-stack-cf5952889aa0">exploring them</a> in depth.</li>
<li>We look for marketplaces that can become <strong>truly significant</strong>. In monetary terms, this means the potential to ultimately generate hundreds of millions of dollars in annual net revenues and billions in GMV.</li>
</ul>
<br />
<i>Thanks for contributing this section, <a href="https://twitter.com/pawell">Pawel</a>. Expect a follow-up post with more details from Pawel (who’s leading most of our marketplace investments) soon.</i>
<br />
<i><br /></i>
<br />
<h3>
<strong><u>We will continue to invest in new areas and technologies that we like to dub “Frontier Tech”</u></strong></h3>
<br />
<ul>
<li>While we’re focused on two <em>business models</em> – SaaS and marketplaces – we’ll continue to keep our eyes wide open with respect to new <em>technologies</em>.</li>
<li>We’re extremely interested in new opportunities in areas such as <a href="https://machinelearnings.co/winning-strategies-for-applied-ai-companies-f02cac0a6ad8">AI/ML</a>, <a href="https://medium.com/point-nine-news/tagged/blockchain">blockchain and cryptocurrencies</a>, IoT and <a href="https://medium.com/point-nine-news/haas-an-investment-thesis-for-hardware-startups-e3500c8d7007">hardware-as-a-service</a>, <a href="https://medium.com/point-nine-news/drone-startups-and-investors-landscape-4575365a32f9">drones</a>, or AR/VR. We have already made investments in most of these areas and will continue to do so.</li>
<li>In many of these cases there are complex tech problems that must be solved. We’re happy take a certain level of technology risk, but at the same time we’re looking for founders who find ways to bring a product to the market quickly and cheaply.</li>
<li>While a superior technology will usually be key to entering the market and have some early wins, most technologies will eventually be commoditized. Therefore we’re looking for additional sources of long-term defensibility such as high switching costs and large data sets (see the section on SaaS above) or network effects (see the section on marketplaces above).</li>
</ul>
<br />
<i>Thanks to Mr. Frontier Tech <a href="https://medium.com/point-nine-news/meet-rodrigo-part-time-geek-spaniard-abroad-partner-at-point-nine-ab42031dfdd9">Rodrigo</a> for your help with this section, and looking forward to your follow-up post as well.</i><br />
<br />
<h3>
<strong><u>We will continue to focus on early-stage investments</u></strong></h3>
<br />
<ul>
<li>We’ll continue to focus on seed investments, investing anything from a few hundred thousand dollars up to around $2M in “seed” and “late seed” rounds, typically in companies that have strong indications of Product/Market Fit and promising early traction.</li>
<li>We will continue to make what we call „founder bets“: Idea-stage investments into proven entrepreneurs from our close network. In these cases most of our „rules“ don’t apply. When people like Doreen Huber, Fabian Siegel, Iñigo Juantegui, Pan Katsukis, Sebastian Diemer or Stefan Smalla start something new, we want to be part of it. <sup>4</sup></li>
</ul>
<br />
<h3>
<strong><u>We will continue to invest internationally</u></strong></h3>
<br />
<ul>
<li>Europe is our home market – we’ve made investments in most European countries and we’ll continue to invest all over Europe.</li>
<li>Especially in SaaS we will continue to invest outside of Europe as well – e.g. in the US, Canada, Australia, New Zealand and other countries.</li>
<li>In SaaS, our assumption is that you can start almost anywhere but you have to win globally (which requires winning the US). In marketplaces we want to find companies that can win <a href="https://medium.com/point-nine-news/global-vs-multi-local-startups-83f38394695b">several large markets</a>.</li>
</ul>
<br />
<h3>
<strong><u>We continue to aspire to be a </u></strong><strong><a href="http://christophjanz.blogspot.com/2014/11/good-vcs-bad-vcs.html">“Good VC”</a></strong></h3>
<br />
<ul>
<li>We don’t pretend to be the right investor for every startup. But our aspiration is that if we do invest in a company, we’re the absolute best partner the founders can dream of and that we’ll play a significant role in helping the company get to the next stages.</li>
<li>We’re optimizing for the long run in everything we do. You “always meet twice in life”, as the German saying goes.</li>
</ul>
<br />
<br />
_________________________<br />
<br />
<sup>1</sup> <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">Check out this post</a> if you have no idea what I’m talking about. Then, <a href="http://www.5waysto100.com/">get your poster</a>.<br />
<sup>2</sup> See Sarah Tavel’s post about <a href="https://medium.com/@sarahtavel/how-to-build-an-enduring-multi-billion-dollar-business-hint-create-a-10x-product-recast-3527df2b8fcb">“10x better </a><a href="https://medium.com/@sarahtavel/how-to-build-an-enduring-multi-billion-dollar-business-hint-create-a-10x-product-recast-3527df2b8fcb"><em>and</em></a><a href="https://medium.com/@sarahtavel/how-to-build-an-enduring-multi-billion-dollar-business-hint-create-a-10x-product-recast-3527df2b8fcb"> cheaper products”</a> for a similar concept from the consumer Internet world.<br />
<sup>3</sup> Defining liquidity is tricky – a topic for another post!<br />
<sup>4</sup> True story – these are all guys who we backed or worked with closely before and who subsequently founded Lemoncat, Marley Spoon, OnTruck, Remerge, Finiata and Westwing, respectively.
Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-40557740846677851402017-07-05T22:57:00.001+02:002017-07-05T22:57:55.376+02:00WTF is PMF? (part 2 of 2)In the <a href="http://christophjanz.blogspot.com/2017/06/wtf-is-pmf-part-1-of-2.html">first part of this post</a>, I looked at what some of the most knowledgeable people in the industry said about Product/Market Fit (PMF) and how they try to define and measure it. While everybody seems to agree on the broad concept of PMF there is (unsurprisingly) no consensus on how exactly it can be defined and measured, and some people set the bar much higher than others. For example, according to Brad Feld you find PMF <a href="https://www.feld.com/archives/2015/01/illusion-product-market-fit-saas-companies.html">somewhere between $100k and $1M in MRR</a>, while others argue that you can have PMF with much lower revenues.<br />
<br />
In this part I’d like to talk a bit about my view on PMF and how we try to detect it when we look at SaaS startups at Point Nine. Here’s my favorite definition of PMF, inspired by many of the people mentioned in the first part of the post:<br />
<br />
<div style="text-align: center;">
<b>Product/Market Fit means having a product that solves a problem for a significant number of independent customers.</b></div>
<div style="text-align: center;">
<br /></div>
Note that this definition intentionally doesn’t say anything about market size. Lots of companies have PMF for a very small market, but addressing a small market is not a reason to deny a company its PMF.<br />
<br />
If we talk about PMF for “VC cases”, i.e. the type of company venture capital investors are looking for, I would adjust the definition as follows:<br />
<br />
<div style="text-align: center;">
<b>Product/Market Fit means having a product that solves an important problem – without custom work and better than existing solutions – for a significant number of independent customers in a large market.</b></div>
<br />
The next step in getting to a solid definition would be to define the pieces that this definition includes: How “important” is important enough, and how can it be measured? How much “better” is better enough, and how can it be measured? And so on. <br />
<br />
There are no clear answers to these questions and – sorry – I don’t think there is a razor-sharp way of defining and measuring PMF. Some companies clearly have PMF, some clearly don’t. Others are somewhere in the middle – they have indications of PMF but it’s not clear if they will ever get to strong PMF. Most seed investments that we’re considering fall into the last bucket.<br />
<br />
Here’s an overview of the most important factors that we’re looking at when we try to assess the degree of PMF of a SaaS company. In isolation, none of these factors can tell you if you have PMF or not. But taken together, it can hopefully give you at least a good indication:<br />
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This concludes my mini-series on Product/Market Fit (at least for now). Let me know if you have any feedback!<br />
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___________________________<br />
<br />
<span style="font-size: x-small;">1) For more background on the concept of rabbit/deer/elephant hunters, <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">check out this post</a>.</span><br />
<span style="font-size: x-small;">2) Take a look <a href="https://news.greylock.com/why-onboarding-is-the-most-crucial-part-of-your-growth-strategy-8f9ad3ec8d5e">at this post</a> to read more about "expected usage frequency".</span><br />
<span style="font-size: x-small;">3) This is from Sean Ellis’ test for PMF. <a href="https://www.cobloom.com/blog/how-to-use-the-sean-ellis-product/market-fit-test">More on this here</a>.</span><br />
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-21104616064700915112017-06-28T17:15:00.000+02:002017-07-06T13:12:59.333+02:00WTF is PMF? (part 1 of 2)I’ve been fascinated by the concept of Product/Market Fit for quite some time. The reason why it’s such an interesting and important concept is that getting to Product/Market Fit (PMF) marks a critical juncture in a company’s lifecycle. At least in theory, the life of a company can be divided into a “pre PMF” phase and a “post PMF” phase, with each of the two phases having very different objectives and requiring very different strategies. As Marc Andreessen famously said, <a href="http://pmarchive.com/guide_to_startups_part4.html">“when you are before PMF, focus obsessively on getting to PMF”</a>. Once you have PMF, you can start to focus on hiring, getting more customers, finding customer acquisition channels, optimizing pricing, and so on. In reality, there’s usually not a sharp line of demarcation that separates the “before” from the “after”. Rather, companies typically increase their level of PMF gradually.<br />
<br />
The problem with PMF is that it’s hard to precisely define and even harder to measure. So difficult, in fact, that I’ve heard several people resort to the <a href="https://en.wikipedia.org/wiki/I_know_it_when_I_see_it">“I know it when I see it”</a> phrase (famously used by a Supreme Court justice to define pornopgraphy). Think about it. We have the concept of a demarcation line which calls for different strategies “before” and “after”, but we don’t seem to have a precise definition of that concept, nor the tools to measure whether a company is “before” or “after”! To make things worse, according to data from a <a href="https://www.geekwire.com/2011/number-reason-startups-fail-premature-scaling/">Startup Genome Report</a> “premature scaling” (i.e. spending significant amounts of money on growth before you find PMF) is the #1 reason why startups fail!<br />
<br />
Let’s look at what some of the smartest people in the industry have said and written about PMF.<br />
<br />
<h3>
<b>1. What is Product/Market Fit?</b></h3>
<br />
<ul>
<li>Paul Graham apparently said that PMF simply means “making stuff that people want” (I couldn’t find the original quote but saw it <a href="http://slideshare.net/_TheFamily/growth-hacking-disrupt-the-business-with-mobile/8-Distribute_your_beta_appto_a">in this presentation</a>).</li>
<li>Marc Andreessen got more precise, saying that PMF means <a href="http://pmarchive.com/guide_to_startups_part4.html">“being in a good market with a product that can satisfy that market”</a>.</li>
<li>Michael Skok added the important element of the “Minimum Viable Segment” <a href="http://venturebeat.com/2013/06/03/minimum-viable-segment/">in this article</a>, pointing out that “your product isn’t going to fit the entire market from day one. Minimum Viable Segment (MVS) is about focusing on a market segment of potential customers who have the same needs to which you can align.”</li>
<li>My dear colleague <a href="https://medium.com/point-nine-news/product-market-fit-align-product-distribution-customers-c64f405c9448#.spuldrh68">Clément Vouillon added another dimension</a> – distribution – and defined PMF like this: “It happens when the product (a set of features that have a clear value proposition) resonates with customers (which are of a certain type and have defined needs) that you know how to reach and convert (through marketing and sales).”</li>
<li>Andrew Chen has <a href="http://andrewchen.co/zero-to-productmarket-fit-presentation/">another interesting twist</a>: PMF is “when people <i>who know they want your product</i> are happy with what you’re offering”.</li>
<li>Last but not least, according to <a href="https://sivers.org/book/LeanStartup">Eric Ries</a> “The term product/market fit describes ‘the moment when a startup finally finds a widespread set of customers that resonate with its product”, and <a href="https://www.fastcompany.com/3014841/why-you-should-find-product-market-fit-before-sniffing-around-for-venture-money">Andy Rachleff said</a>: “You know you have fit if your product grows exponentially with no marketing.”</li>
</ul>
<br />
<h3>
2. Is Product/Market Fit a discrete event, or is there a gradual development towards PMF?</h3>
<br />
<ul>
<li><a href="https://www.saastock.com/blog/view/peter-reinhardt-ceo-segment-finding-product-market-fit">In his excellent talk</a> at the great <a href="https://www.saastock.com/">SaaStock</a> conference in Dublin last fall, <a href="https://twitter.com/reinpk">Peter Reinhardt</a>, co-founder & CEO of Segment, explained how Segment, after struggling for a long time, <i>suddenly</i> got to PMF when they put up a landing page for what used to be a little side project. According to Peter, “product market fit is not vague, positive conversations with customers. It's not glimmers of false hope around some random positive interaction. What it actually feels like is a landmine going off”.</li>
<li>According to <a href="https://twitter.com/bfeld">Brad Feld</a> and <a href="https://twitter.com/bhorowitz">Ben Horowitz</a>, Segment’s experience is the exception to the rule, though. According to Brad, PMF is something that you <a href="http://www.feld.com/archives/2015/01/illusion-product-market-fit-saas-companies.html">find somewhere between $100k and $1M MRR</a>, and Ben has called PMF as a <a href="http://blog.pmarca.com/2010/03/20/the-revenge-of-the-fat-guy/">“discrete, big bang event” a “myth”</a>.</li>
</ul>
<br />
<h3>
3. How can Product/Market Fit be measured?</h3>
<br />
<ul>
<li>As mentioned in the beginning, a lot of people would say you can’t measure PMF and that you “know it when you see it”. <a href="https://twitter.com/sjacobsohn">Sean Jacobsohn</a> of Norwest Venture Partners took up the challenge and developed <a href="http://venturebeat.com/2014/08/02/cloud-startup-product-market-fit/">a 5-question quiz</a> that you can use to rate your level of PMF. I like his approach a lot and turned the quiz into <a href="https://pointninecap.typeform.com/to/lxG7os">a little Typeform</a> some time ago.</li>
</ul>
<ul>
<li>Another quantitative approach comes from <a href="https://twitter.com/SeanEllis">Sean Ellis:</a></li>
</ul>
<blockquote class="tr_bq">
“I ask existing users of a product how they would feel if they could no longer use the product. In my experience, achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product. Admittedly this threshold is a bit arbitrary, but I defined it after comparing results across nearly 100 startups. Those that struggle for traction are always under 40%, while most that gain strong traction exceed 40%.” </blockquote>
<blockquote class="tr_bq">
(taken from <a href="http://www.startup-marketing.com/the-startup-pyramid/">“The Startup Pyramid”</a>)</blockquote>
<blockquote class="tr_bq">
I’m fascinated by Sean’s approach because it’s the most quantifiable way to detect PMF that I’ve seen so far. The question is whether the 40% threshold, which as Sean admits is a bit arbitrary, will continue to hold true with bigger sample sizes. I’m also wondering to what extent this “test” can be skewed by the type of users that you happened to attract. Nevertheless, it’s impressive that there seems to be a strong pattern among almost 100 startups.</blockquote>
<ul>
<li>Andrew Chen offers <a href="http://andrewchen.co/zero-to-productmarket-fit-presentation/">a few examples of what PMF looks like</a>. For a SaaS company, he mentions a few indicators, including these:</li>
<ul>
<li>5% conversion rate from free to paid</li>
<li>less than 2% monthly churn</li>
<li>clear path to $100k MRR</li>
</ul>
</ul>
<ul>
<li>Brad Feld uses a pretty high bar for his definition of PFM. According to Brad, you don’t have PMF until you <a href="http://feld.com/archives/2015/01/illusion-product-market-fit-saas-companies.html">“blast through the $500k MRR mark and march to $1M MRR”</a>.</li>
</ul>
<br />
<br />
In the second part of this post (which I’ll hopefully finish in a few days) I’ll talk a bit about my personal view on PMF and how we try to detect it when we look at SaaS startups at Point Nine. Don’t expect too much wisdom though, unsurprisingly we don’t have the ultimate answer to the PMF conundrum!<br />
<br />
[Update: <a href="http://christophjanz.blogspot.com/2017/07/wtf-is-pmf-part-2-of-2.html">Here is part 2.</a>]Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-3121467536140141122017-05-17T18:15:00.000+02:002017-05-17T18:15:05.994+02:00The growing dissonance between two business models (SaaS and VC)<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgAseBlnj87v3T_96Rq-4bYliwwKo10ljTnKHhWIGKeOIW0dl5NSrAnSFXBGJfIoK3MW1Si5Uf3SBPCmiUByPbnzZRXvbNQNVN-HgjyApGtdV1y1mx0MwR2lW60w31nHIK91l8/s1600/contradiction.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="168" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjgAseBlnj87v3T_96Rq-4bYliwwKo10ljTnKHhWIGKeOIW0dl5NSrAnSFXBGJfIoK3MW1Si5Uf3SBPCmiUByPbnzZRXvbNQNVN-HgjyApGtdV1y1mx0MwR2lW60w31nHIK91l8/s200/contradiction.jpg" width="200" /></a></div>
In our weekly investment team call earlier this week we decided to pass on two early-stage SaaS startups that were both on track to grow from zero to $100k in MRR in their first 12 months of going live. Both companies clearly had impressive traction, but in both cases we weren’t convinced of the market size and the opportunity to build a large, sustainable company. (We of course might be wrong, and maybe we’ll have to add both companies to <a href="http://christophjanz.blogspot.com/2014/12/a-toast-to-all-great-ones-that-weve.html">our growing anti-portfolio list</a> in a couple of years. I’ll keep you posted.)<div>
<br /></div>
<div>
Had I seen a SaaS startup with this growth curve in my first 2-3 years of SaaS investing (in 2008-2010) I probably would have asked “where do I have to sign?”. And chances are that it would have been a good investment. The reason is that at that time, growing from zero to $100k in MRR within 12 months was extremely rare and an indication of not only a great product and excellent execution but also a great market opportunity.</div>
<div>
<br /></div>
<div>
One could argue that I saw much fewer deals in general at that time and that, being an angel investor, I had lower ambitions than a VC. That’s true. But it’s only part of the picture. The other part is that even as recently as 6-24 months ago, we’d consider a SaaS startup with this growth pattern exceptional. Passing on fast-growing SaaS companies that are clearly successful and on to something is a pretty new and somewhat scary experience for us.</div>
<div>
<br /></div>
<div>
The driver behind this development is what my colleague Clément Vouillon has described as <a href="https://medium.com/point-nine-news/the-rise-of-non-vc-compatible-saas-companies-47054f1f3b29">“The Rise of Non ‘VC compatible’ SaaS Companies”</a>, that is the fact that compared to some years ago there are now many more SaaS companies that get to $1M, $5M, maybe even $10M in ARR. Arguably, there’s never been a better time to start a SaaS company. A much larger and more educated market, combined with vastly lower costs to create software, means that your chances of building a viable SaaS company have never been higher. </div>
<div>
<br /></div>
<div>
For VCs, the question is how many of these companies can become large enough to make the (admittedly somewhat weird) business model of venture capitalists work. Large VCs need <a href="https://www.saastr.com/why-vcs-need-unicorns-just-to-survive/">multiple unicorns just to survive</a>. In SaaS, that means companies that get to $100M in ARR and keep growing fast beyond that mark. With a ~$60M fund, we at Point Nine <a href="http://christophjanz.blogspot.com/2015/09/what-animals-are-we-hunting.html">may not need unicorns to survive</a>, but we won’t generate a great return if we don’t have exits north of $100M either. And as much as I agree with <a href="https://techcrunch.com/2017/05/16/theres-no-shame-in-a-100m-startup/">this post on TechCrunch today</a> when it says that <i>starting and selling a company for $100 million dollars is an outlier event in terms of pure entrepreneurial probability</i>, a big part of my daily motivation is to find some of these truly iconic companies that become much larger. I guess once you’ve seen it once (in my case with Zendesk) you get addicted and want to do it again. :-)</div>
<div>
<br /></div>
<div>
<div style="text-align: center;">
<i>We've come too far</i></div>
<div style="text-align: center;">
<i>To give up who we are</i></div>
<div style="text-align: center;">
<i>So let's raise the bar</i></div>
<div style="text-align: center;">
<i>And our cups to the stars</i></div>
<div style="text-align: center;">
<br /></div>
</div>
<div>
<div style="text-align: center;">
<a href="https://www.youtube.com/watch?v=h5EofwRzit0">Daft Punk, Get Lucky</a></div>
<div style="text-align: center;">
<br /></div>
<div style="text-align: center;">
(I’m not sure if I understand the meaning of these lines in the context of the song, but I love the song and had to think of these lines while writing this post.)</div>
<br />Coming back to our observation regarding the rise of bootstrapped SaaS companies, assuming our theory is right, it means two things:</div>
<div>
<br /></div>
<div>
<b>1) We’ll have to raise the bar even further</b></div>
<div>
There will be more and more SaaS companies that, based on the “pattern recognition” that we’ve developed in the last years, we’d like to invest in but will have to pass on. We can only make 10-15 new investments per year and we’re obviously trying to find the very best ones - the outliers among the outliers, if you will.<br /><br /><b>2) Picking might become even harder</b></div>
<div>
If it’s true that there are indeed more SaaS companies that quickly grow to $1-2M in ARR but that increase is not matched by a similar increase of companies that become very large, picking the right investments will become even harder. To keep up with that challenge we’ll have to constantly ask ourselves if we’re still asking the right questions when we assess a potential investment.</div>
<div>
<br /></div>
<div>
What does it mean for SaaS founders? First of all, as mentioned above, we might live in the best time to start a new SaaS company that ever existed. Second, founders should ask themselves what kind of company they aspire to build and should only try to raise venture capital if they are convinced that they want to build what Clément called the <a href="https://medium.com/point-nine-news/the-rise-of-non-vc-compatible-saas-companies-47054f1f3b29">“VC compatible” startup</a> (check out his post for a little checklist). As Clément said, this is not about good or bad. The VC path is not better than the bootstrapping path. In fact, for the majority of SaaS startups it’s probably not the right one. <br /><br />Not yet convinced that you shouldn’t raise venture capital? :) <a href="https://pointninecap.typeform.com/to/gZKJUl?referrer=christoph">Let us know</a>!<br /></div>
Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-59998562600498961852017-05-05T17:28:00.000+02:002017-05-05T17:28:41.110+02:00Revisiting Point Nine’s tech stack. Plus: 7 little hacks that help me keep (some of my) sanity<i>[This post first appeared on <a href="https://medium.com/point-nine-news/revisiting-point-nines-tech-stack-plus-7-little-hacks-that-help-me-keep-some-of-my-sanity-b5f2d30c6b23">Point Nine Land, our Medium channel</a>.]</i><br />
<br />
A few years ago I wrote about some of the tools that we’re using to <a href="http://christophjanz.blogspot.com/2012/11/yummy-dog-food-or-running-vc-fund-in.html">run a VC fund in the Cloud</a>. Nicolas later followed up with <a href="https://medium.com/point-nine-news/a-micro-vcs-tech-stack-262db02c6f0a">more details about our tech stack</a>. Today I’d like to provide a quick update on how our SaaS stack has evolved, as well as share a couple of little tools and hacks that help me (sort of) keep (a little bit of) my sanity.<br />
<div>
<span style="font-size: x-large;"><b><br /></b></span>
<span style="font-size: x-large;"><b>Part 1: The Basics</b></span><br />
<br />
<a href="https://www.zendesk.com/">Zendesk</a> continues to be our lifeblood. Since we started using Zendesk to manage our deal-flow about six years ago, we’ve logged more than 18,000 potential investments, and every month, several hundred new ones are being added. Processing so many new deals in a timely fashion is no easy feat (kudos to <a href="https://twitter.com/savinavds">Savina</a>, <a href="https://twitter.com/louicop">Louis</a> and <a href="https://twitter.com/robindchnt">Robin</a> who are doing the bulk of that work!) and wouldn’t be possible without Zendesk. Zendesk obviously hasn’t been built for this use case, but the ability to customize the software with triggers, automations, macros and other features has turned Zendesk into the perfect deal-flow management system for us.<br />
<br />
We continue to use <a href="https://basecamp.com/">Basecamp</a> to keep track of our portfolio companies — we have one dedicated Basecamp project for each portfolio company that we use internally at Point Nine to store updates and meeting notes — but have migrated to <a href="http://www.honey.is/">Honey</a> and <a href="https://slack.com/">Slack</a> for most other use cases that we previously used Basecamp for. Honey (a Point Nine portfolio company) offers a beautiful, modern intranet and is great for storing long-lived content. Slack has allowed us to heavily reduce internal email communication. I was initially sceptical about Slack (yet another inbox?) but have meanwhile become a big fan because the time we spend on Slack is more than offset by the time we save on email. In my experience, the two biggest advantages of Slack over email are (a) the ability to quickly discuss issues with a group of people in real-time and (b) organizing conversations by channel, which makes it easier to ignore (or process in batches) less urgent messages.<br />
<br />
We continue to use <a href="https://docs.google.com/">Google Docs</a> and <a href="https://www.google.com/sheets/about/">Google Sheets</a> for almost all documents and spreadsheets, and after some initial resistance, I think even our COO <a href="https://twitter.com/olaz_berlin">Aleks</a> (who spent her previous life with Word and Excel), is starting to like it. :) For documents that still come in Word, Excel or PDF form, we’re (of course) using <a href="https://www.dropbox.com/">Dropbox</a> to ensure that everybody always has the latest version.<br />
<br />
We’re still using <a href="https://www.skype.com/en/">Skype</a> for external calls on a daily basis, but have switched to <a href="https://zoom.us/">Zoom</a> for internal video conferences. I’m still a fan of Skype, but Zoom seems to be more reliable and to offer a slightly better audio/video quality, and offers call-in numbers for people who have to call in while on the go. The only downside is that Zoom eats up a lot of CPU, and for some reason that is completely beyond me doesn’t allow you to show a large screen-sharing window and a large video at the same time.<br />
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Our <a href="http://www.pointninecap.com/">website</a> is now powered by <a href="http://www.contentful.com/">Contentful</a>, and we use <a href="http://unbounce.com/">Unbounce</a> for <a href="http://unbouncepages.com/pnctrufflepigreloaded/">landing pages</a>, and <a href="https://www.typeform.com/">Typeform</a> for all kinds of things. Speaking of dogfooding, we love it when a SaaS company uses <a href="https://chartmogul.com/">ChartMogul</a> as that gives us easy access to all relevant SaaS metrics; we’re using <a href="https://www.15five.com/">15Five</a> for team feedback; <a href="https://web.mention.net/">Mention</a> for media monitoring; <a href="http://www.contactually.com/">Contactually</a> for contact management; and (more recently) <a href="https://qwilr.com/">Qwilr</a> for occasional sales pitches.<br />
<br />
Finally, we recently got started with <a href="https://recruitee.com/en">Recruitee</a> to manage the growing talent pool for the #P9Family. We’re using <a href="https://medium.com/point-nine-news">Medium</a> as our blogging platform (although this blog still runs on <a href="https://www.blogger.com/">Blogger</a>, which tells you something about my age); <a href="https://tinyletter.com/">TinyLetter</a> for our <a href="http://tinyletter.com/pointninecapital">“Content Newsletter”</a> (subscribe here); and <a href="https://buffer.com/">Buffer</a> to schedule social media posts. Last but not least, we still use <a href="https://mailchimp.com/">MailChimp</a> to publish our (in)famous newsletter (<a href="http://eepurl.com/mO-MT">sign up here if you haven’t yet</a>).</div>
<div>
<span style="font-size: x-large;"><b><br /></b></span>
<span style="font-size: x-large;"><b>Part 2: The little tools and hacks</b></span><br />
<b><br /></b>
<b><span style="font-size: large;">1. TextExpander</span></b></div>
<div>
<br /></div>
<div>
<a href="https://textexpander.com/">TextExpander</a> lets you insert snippets of text using shortcuts. I remember using a similar application with the same functionality on Windows 3.11 (which tells you even more about my age), when in the first couple of months after launching <a href="https://partners.nytimes.com/library/tech/98/08/cyber/eurobytes/11euro.html">Acses</a>, my main job was to write personalized emails, suggesting a link exchange, to as many website owners as possible. Since then, text expanders have become one of my favorite productivity helpers. To give you an idea of how I’m using it, here are a few examples of some of my favorite shortcuts:</div>
<div>
<br /></div>
<div>
<u>Shortcut:</u> <i>calendly30</i></div>
<div>
<br />
<u>Text snippet:</u><br />
<br />
<i>Want to pick a time from my calendar?<br /><br />https://calendly.com/XXX<br /><br />Alternatively, please feel free let me know a few options that would work well on your end.<br /><br />Looking forward to it!</i><br />
<br />
<u><br /></u></div>
<div>
<u>Shortcut:</u> <i>iiwfy</i><br />
<br />
<u>Text snippet:</u><br />
<br />
<i>If it works for you we can use Skype, my user name is XXX. Alternatively you can reach me at XXX.<br /><br />Looking forward to talking to you soon!</i></div>
<div>
<br /></div>
<div>
<br /></div>
<div>
<u>Shortcut</u>: m-a-c<br />
<br />
<u>Text snippet:</u><br />
<br />
<i>Thank you for your interest!<br /><br />You can get an editable copy of the spreadsheet by going to „File > Make a copy“.<br /><br />Let me know if you have any questions.<br /><br />Best regards<br /><br />Christoph</i><br />
<br />
I hope you won’t find it rude that if you receive an email from me, not each and every word may be carefully typed in by hand. But there are only 24 hours in the day, and if I didn’t save time this way I could answer fewer emails, which would be worse.<br />
<br />
<span style="font-size: large;"><b>2. Calendly</b></span><br />
<br />
Did you notice the calendly.com link in the first snippet above? <a href="https://calendly.com/">Calendly</a> is another favorite of mine. It’s a scheduling tool that can greatly reduce the back-and-forth emails that are so often required to schedule a meeting or call. Here’s how it works:<br />
<br />
<ul>
<li>Let Calendly know your availability by connecting it with your calendar and by setting up slots for calls and meetings.</li>
<li>If you want to schedule a call or meeting with someone, send him/her your Calendly link.</li>
<li>The other person picks a time, and the event is added to your calendar (and the other person gets a calendar invite for his/her calendar).</li>
</ul>
<br />
Compared to solutions like <a href="https://x.ai/">x.ai</a>, which try to solve the problem using AI, Calendly is a rather “dumb” tool. It won’t solve all of your scheduling issues: If, for example, you need to coordinate a meeting with a bigger group of people or if you need to take into account travel times and traffic, Calendly won’t do the job. But my experience is that it works perfectly well for 90% of my Skype/phone calls, so I can highly recommend it.<br />
<br />
Initially I was worried if the UX for the person you’re scheduling with was good enough or if people don’t want to click on a link in an email in order to schedule a meeting with me. However, I’ve gotten only good feedback so far, and just in case, I always include the “Alternatively, please feel free to let me know a few options … “ note when I send around the Calendly URL. Another great solution is <a href="https://mixmax.com/blog/feature-spotlight-instant-scheduling">MixMax’ “instant scheduling” feature</a>, which arguably offers an even better experience for the person on the receiving end.</div>
<div>
<br /></div>
<div>
<span style="font-size: large;"><b>3. 1Password</b></span></div>
<div>
<br />
<a href="https://1password.com/">1Password</a> is one of those apps that, once you’ve used it for a little while, makes you wonder how you ever survived without it. If you’re not using a password manager, chances are that:<br />
<br />
<ul>
<li>you use the same passwords everywhere (pretty risky — if one site gets hacked, the hacker gets access to all your online accounts); or</li>
<li>you keep a list of all your passwords (not much safer and not very convenient); or</li>
<li>you try to memorize a lot of different passwords (which probably means you’re resetting passwords all the time)</li>
</ul>
<br />
1Password creates a unique and safe password for each of your online accounts and takes care of the synchronization across all your devices. You only have to memorize one master password in order to unlock your password vault. Just make sure you don’t lose that password!<br />
<br />
<span style="font-size: large;"><b>4. My email signature</b></span><br />
<br />
Some time ago I made a slightly weird self-observation: I noticed that when I checked my email on my iPhone while I was traveling and e.g. sitting in a cab, I’d often be faster to reply to emails than when I was sitting at my desk. You’d expect the opposite, because typing on a real keyword is obviously much more convenient and much faster. The reason for this behavior is that the “Sent from my iPhone” signature gave me the excuse for writing very brief replies, whereas when I was at my desk I felt obliged to write longer, more well-written answers — which often led to procrastination. When I noticed this behavior I changed my desktop email signature to this:<br />
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<i>— <br />Christoph Janz | <a href="http://www.pointninecap.com/">www.pointninecap.com</a> | <a href="https://medium.com/u/4b7646df6df4">Christoph Janz</a><br />Not sent from my iPhone. Please excuse brevity nonetheless.</i><br />
I can’t claim that this little hack made me a great emailer. I never achieve inbox zero and regularly have to declare email bankruptcy. But it definitely helped to get somewhat better.<br />
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<span style="font-size: large;"><b>5. Typeform => Zapier => Zendesk</b></span><br />
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About 18 months ago we replaced the “submit” email address on our website by a Typeform. The Typeform lets founders upload a pitch deck and allows us to collect a few bits of information such as the startup’s sector, launch date and funding ask. <a href="https://pointninecap.typeform.com/to/gZKJUl">You can check out the pitch submission Typeform here</a>. We use <a href="https://zapier.com/">Zapier</a> to push the data from Typeform to our Zendesk. If you submit the Typeform, here’s what we see:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4LdnWd4sT5nooKxeK3l22Vq9LHurp5f4OsAr-z7vok6-Pi001tQZtVh65bwT6uB_f9IHP4oatuyHYI4rfGIZlPKNMmgHXsRdcX0JRScUZKSazsnlqqfQpKg7IUFLtMk3hUxm3/s1600/1-nTxu1jjNTHJV0XzuRT6RNQ.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="317" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4LdnWd4sT5nooKxeK3l22Vq9LHurp5f4OsAr-z7vok6-Pi001tQZtVh65bwT6uB_f9IHP4oatuyHYI4rfGIZlPKNMmgHXsRdcX0JRScUZKSazsnlqqfQpKg7IUFLtMk3hUxm3/s400/1-nTxu1jjNTHJV0XzuRT6RNQ.png" width="400" /></a></div>
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The impact of this seemingly small hack, which simply ensures that we get all of the information that we need for our initial assessment at a glance , turned out to be staggering. Previously we often felt like we were drowning in incoming inquiries and would often accumulate a large backlog of submissions; thanks to the improved process, we’re usually able to get back to founders within 1–2 weeks.<br />
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When we were considering removing the “submit” email address and replacing it by a Typeform, we weren’t sure how people would react. We were somewhat worried that asking founders to complete a form could look unfriendly or unapproachable and were wondering if we’d increase the barrier to submit a pitch too much. Fortunately, we got lots of positive feedback, not least because Typeforms look and feel less like boring web forms and more like a conversational interface. Also, our impression is that the submissions that we’re no longer getting are mostly the ones that we’re happy to miss (like random mass emails about projects that are completely out of our areas of interest).<br />
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<span style="font-size: large;"><b>6. SizeUp</b></span><br />
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<a href="http://www.irradiatedsoftware.com/sizeup/">SizeUp</a> is a Mac app that allows you to quickly resize and position windows with keyboard shortcuts. It’s a simple app, but another one of these handy little tools that I don’t want to miss. I frequently want to see two windows on my screen side-by-side, and with SizeUp it just takes one hotkey to move and resize a window to the left or right half of the screen. Occasionally I want to see more than two windows at once. In that case there’s another set of hotkeys that allows me to arrange the screen into four quadrants. Apple added a “Split View” feature to OS X two years ago or so, but I still prefer SizeUp for its extra features and customizability.<br />
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<span style="font-size: large;"><b>7. SaneBox</b></span><br />
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<a href="https://www.sanebox.com/">SaneBox</a> was highly recommended to me by <a href="https://twitter.com/pawell">Pawel</a>, who’s been swearing by the product’s ability to help him keep his sanity for some years already. After using SaneBox for a little while it has become an essential part of my tool stack as well. SaneBox comes with <a href="https://www.sanebox.com/learn">a whole bunch of features</a>, but for me the key feature is that it moves all emails that don’t look important into a couple of special folders such as “Social”, “News” and “SaneLater”, leaving only a much smaller amount of emails in my main inbox. This way you can check out newsletters, social network notifications and everything else that SaneBox’s algorithm determines to be unimportant in batches, which saves you lots of interruptions.<br />
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I also use SaneBox’s ability to detect emails from people, who I haven’t communicated with before, to send them this auto-responder:<br />
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<i>Hi there,<br /><br />This is an automated reply to thank you for your message. You’re receiving it because my AI-based assistant thinks that we don’t know each other well yet. :)<br /><br />I’m trying to read and answer all emails in a timely manner, but due to the large volume of emails that I’m getting it doesn’t always work. If you don’t get a personal email soon I apologize in advance.<br /><br />In the meantime …<br /><br />* If you’d like to submit a pitch, please use this Typeform:<br /><br /><a href="https://pointninecap.typeform.com/to/gZKJUl?referrer=christoph">https://pointninecap.typeform.com/to/gZKJUl?referrer=christoph</a><br /><br />* To get a copy of one of the Google spreadsheets that I’ve published on my blog, you can get an editable copy of any spreadsheet by going to „File > Make a copy“.<br /><br />* If you’re interested in working for one of our amazing portfolio companies, please reach out to jenny@pointninecap.com.<br /><br />* For other inquiries, please email us at info@pointninecap.com.<br /><br />* If you’re a SaaS company and you want to get your metrics right, check out ChartMogul (www.chartmogul.com)<br /><br />* I unfortunately don’t have the time to answer individual questions in regards to financial planning. Sorry.<br /><br />Best regards<br /><br />Christoph<br /><br />— <br />Christoph Janz<br />www: pointninecap.com | Blog: <a href="http://www.theangelvc.net/">www.theangelvc.net</a> | Twitter: @chrija</i><br />
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I still take a look at all of these emails and try to reply to most of them, but it’s not always possible (and also not always necessary) and in these cases I think this auto-reply is better than no reply at all. What’s great about this setup (which uses SaneBox and Zapier) is that none of my regular contacts get this auto-responder. Once I’ve sent you an email, SaneBox classifies you as “important” and removes you from the “SaneLater” label.<br />
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This is by no means an exhaustive list of all the tools and little hacks that we’re using at Point Nine, but I hope you found some of them useful.<br />
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<b>What are <i>your</i> favorite productivity hacks?</b></div>
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-68057089632857516912017-04-02T00:31:00.000+02:002017-04-02T00:33:18.992+02:00Why startups should hire an HR person sooner rather than laterAt the excellent <a href="https://www.saastr.com/saastr-annual-2016/">SaaStr Annual 2016</a> conference about a year ago, a very experienced SaaS CEO said on stage that an internal recruiter can be a startup CEO’s secret superpower. I couldn’t agree more, and I think startups should make that hire sooner rather than later.<br />
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If you can hire only one or two handful of people with your seed round, hiring <i>anybody</i> who doesn’t either code or sell is hard to justify. Being willing to invest in an internal recruiter or talent manager (or more broadly, an HR person) early on requires <strike>pretty big balls</strike> a lot of confidence. The right time for making that hire obviously depends on a variety of factors, but I would argue that most startups should hire an HR person sooner than they think.<br />
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Here’s why.<br />
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<h3>
1) A great HR person can free up a lot of your time</h3>
Anybody who ever hired people knows that it’s extremely time-consuming. Let’s say you want to hire 10 people in the next 12 months. That means that you’ll have to:<br />
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<ul>
<li>screen around 500-1000 CVs</li>
<li>interview around 100 people</li>
<li>do 2nd and 3rd interviews with around 20-50 people</li>
<li>do a few dozen reference calls</li>
<li>negotiate compensation and an employment contract with 10 people</li>
</ul>
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The numbers can obviously vary greatly, but you get the idea. It’s a <i>lot</i> of work, and if you have only developers and sales/marketing people in your company you’ll have to do the bulk of it yourself. An HR person can take over a significant chunk of that work for you.<br />
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<h3>
2) A great HR person can help you make better hires</h3>
An experienced HR person will help you get more candidates, better candidates, and will help you get better at picking the right ones. As a result, he or she will increase the quality of your hires – which is obviously hugely valuable – and reduce the number of costly mis-hires. A great HR person will also help you to build a network of high-quality candidates early on – people who might not be a fit at the current stage but could become a great fit at a later stage.<br />
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<h3>
3) A great HR person will run the process and help you build an employer brand</h3>
A great HR person will not only make sure that you have a great shot at hiring your favorite candidates, he or she will also run the entire hiring process for you and will ensure that you leave a great impression with the many candidates that you will <i>not</i> hire – which is important for your reputation. He or she will also help you to start building an employer brand and to become known as a great place to work.<br />
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<h3>
4) A great HR person will save you money</h3>
Having an inhouse recruiter lets you save on fees for external recruiters. Since external recruiters usually charge 25-33% of the candidate’s annual salary for a successful placement, it’s well possible that your internal HR person will pay for him or herself by reducing the need to work with external search firms.<br />
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<h3>
5) A great HR person will make your employees more effective</h3>
Guess what, adding 10 new people to your team not only means 100s of interviews, it also means setting up payroll for 10 people, onboarding 10 people, providing continuous training and support to 10 more people, and much more. All of this costs a lot of time which you probably don’t have. An internal HR person can greatly help you to take much better care of your team, thereby making your employees both happier and more productive.<br />
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Because of all of these factors, an HR person is one of the highest-leverage hires that you can make. Nevertheless, unless you’ve raised a lot of capital, bringing on an HR person instead of, say, another engineer, is still a difficult trade-off. So when is the right time? I don’t have a scientific answer, but I’d say that <i>by the time you plan to hire 10 people in the next 12 months you should hire an HR person</i>. This point in time will usually coincide with having found a decent level of Product/Market Fit and having raised a larger seed round.<br />
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As another rule of thumb, your HR person should probably come in somewhere between employee #10 and #20 at the latest. As an example, <a href="https://frontapp.com/">Front</a> hired an internal recruiter as employee #19 – and it <a href="http://blog.frontapp.com/2017/02/23/3-critical-hires-most-startups-make-too-late/">sounds like it was not a minute too soon</a>!<br />
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<i>Thanks to Jenny – our very own HR lady! - for reviewing an earlier version of this post and providing valuable feedback.</i><br />
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-22516190334192279602017-02-15T12:29:00.000+01:002017-05-04T15:51:30.424+02:005 ways, 100 million dollars, 100 free posters<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ4KfsVGFY14veqbwWCAnH14tCgw7PMfoZvqxI7OR8bWeNMHrW95AmGF89PVxlXLqdaBzqjMqLvqUyGwQFJCF9Z042kmAF1lFFsrXKBAQEiPFt8y067V7h9cM0kj9UIyu3Nobv/s1600/PosterBlog2.png" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ4KfsVGFY14veqbwWCAnH14tCgw7PMfoZvqxI7OR8bWeNMHrW95AmGF89PVxlXLqdaBzqjMqLvqUyGwQFJCF9Z042kmAF1lFFsrXKBAQEiPFt8y067V7h9cM0kj9UIyu3Nobv/s1600/PosterBlog2.png" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">I'm a big fan of placeit.net ;)</td></tr>
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If you're a reader of this blog, chances are that you've already come across my post about <a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">"five ways to build a $100 million business"</a>. Given that the post (and the <a href="https://medium.com/point-nine-news/5-ways-to-build-a-100-million-business-c5066181bf50#.mntzdvghv">infographic</a> that we created recently) has for some reason resonated so well with lots of people, we thought it would be cool to turn the concept into a beautiful poster that you can put on the wall. The idea is that (besides being decorative), the poster can serve as a little cheatsheet to remind people of some important aspects of building a large business.<br />
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Below is the result that we created together with an excellent illustrator from Barcelona, <a href="http://www.deniseturu.com/">Denise Turu</a>. I hope you like it!<br />
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If you're interested in getting a physical copy of the poster <a href="https://pointninecap.typeform.com/to/iNrUtc">please complete this short Typeform</a>. The first 100 people will get a <b>FREE </b>poster. Afterwards we'll probably give it away for a nominal amount (to cover printing and shipping costs).<br />
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[Update: The 100 free posters sold out quickly but <a href="http://www.5waysto100.com/">you can order the poster here</a>.]<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2qP03le6Vw86pU4gvBmKonEBASh7vL-YbzfFy2aBTVdUOnJfw7Ci4f3Af_JzYeV9_fTuYk6s8KflUkoXN15OB3RI1giquafKC4mJnOZYt5cpeAgglMd9bUr0L2QjoTU2EdEEp/s1600/PosterBlog.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2qP03le6Vw86pU4gvBmKonEBASh7vL-YbzfFy2aBTVdUOnJfw7Ci4f3Af_JzYeV9_fTuYk6s8KflUkoXN15OB3RI1giquafKC4mJnOZYt5cpeAgglMd9bUr0L2QjoTU2EdEEp/s640/PosterBlog.png" width="456" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2qP03le6Vw86pU4gvBmKonEBASh7vL-YbzfFy2aBTVdUOnJfw7Ci4f3Af_JzYeV9_fTuYk6s8KflUkoXN15OB3RI1giquafKC4mJnOZYt5cpeAgglMd9bUr0L2QjoTU2EdEEp/s1600/PosterBlog.png">Click for larger version</a></td></tr>
</tbody></table>
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-29084426002838559782017-01-16T08:41:00.000+01:002017-01-16T08:41:00.822+01:00Impressions from the 5th annual PNC SaaS Founder Meetup (AKA PNC SaaS Camp)We have a tradition here at <a href="http://www.pointninecap.com/">Point Nine</a> that once a year, we organize a meetup for the founders of our SaaS portfolio companies. The first meetup took place in SF back in 2012 and gave the founders in our (at that time still rather small) portfolio a unique opportunity to learn about what works and what doesn't work in SaaS, compare notes and share war stories.<br />
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<div>
About two months ago, the 5th annual PNC SaaS Founder Meetup took place in a small lake town a little bit outside of Berlin. To celebrate the 5th anniversary, we turned the meetup into a 48-hour long "camp" and invited about 150 founders and key people from our SaaS portfolio companies, along with a handful of external SaaS experts, to a nice resort close to Potsdam.<br />
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Here's a short video that we recorded at the meetup:<br />
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<div class="separator" style="clear: both; text-align: center;">
<iframe allowfullscreen="" class="YOUTUBE-iframe-video" data-thumbnail-src="https://i.ytimg.com/vi/OGAWx9Vu_tY/0.jpg" frameborder="0" height="266" src="https://www.youtube.com/embed/OGAWx9Vu_tY?feature=player_embedded" width="320"></iframe></div>
<br />
Spending two full days and two full nights together not only allowed us to put together an amazing agenda with more than 60 presentations and workshops; it also led to countless great conversations, connections, and friendships. We're truly thankful to all the amazing speakers and attendees who made this possible.<br />
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Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-85112033913909243122017-01-10T13:04:00.000+01:002017-01-10T15:23:40.565+01:00SaaS Funding Napkin, the 2017 editionToday is January 10, 2017. That means that in ten days, <a href="https://twitter.com/realDonaldTrump/status/813945096269860866">this jerk</a> will become the leader of the free world. Ugh. It still feels surreal to me. In less earth shattering news, the fact that it's 2017 also means that my <a href="http://christophjanz.blogspot.com/2016/05/what-does-it-take-to-raise-capital-in.html">"SaaS Funding in 2016" napkin</a> needs an update.<br />
<br />
As a reminder, in the original post I tried to give a "back of a napkin" answer to this question: What does it take to raise capital, in SaaS, in 2016? Today I'd like to take a stab at the (early) 2017 answer to that question.<br />
<br />
Like in the 2016 version, the assumption is that the founding team is relatively "unproven". Founders with significant previous exits can raise large seed rounds at high valuations early on, so the "rules" are different for them. On another note, when I say "what does it take to raise capital" I mean "what does it take to <i>have an easy time</i> raising capital <i>from great investors</i>". If your company doesn't meet the (very high) bar pictured on the napkin it doesn't mean that you won't be able to raise money at all. It just means that it probably won't be easy, that you will likely have to talk to a large number of investors and that you may not be able to raise from a well-known firm.<br />
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So, what does it take to raise capital, in SaaS, in early 2017? I don't think a huge amount has changed since I created the first version of the napkin about nine months ago, but here are a few observations:<br />
<br />
<b>1) The bar keeps getting higher and higher</b><br />
<br />
I already wrote about the <a href="http://christophjanz.blogspot.com/2015/01/whats-table-stakes-in-saas-anno-2015.html">rising table stakes in SaaS</a> two years ago, and since then the bar has kept increasing. The SaaS companies included in Tomasz Tunguz' <a href="http://tomtunguz.com/benchmarking-exceptional-series-a-companies/">benchmarking analysis of exceptional Series A companies</a> grew on average from $10k to more than $90k in MRR in their first year of commercialization and then to over $400k of ending MRR in their second:<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNfdEBtFW-jdKFY2c415fIJ9bI5NHdMKXcZxcrSk-R3_1lcNgowHN-RhNppK59xts7LagBXC66oNZgRZ4Lu-j0wHTUT68_9rXf1NuDhintMxFk5M2lW1K1nMChkiUtxqj_aWUQ/s1600/mrr_premium_series_a.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNfdEBtFW-jdKFY2c415fIJ9bI5NHdMKXcZxcrSk-R3_1lcNgowHN-RhNppK59xts7LagBXC66oNZgRZ4Lu-j0wHTUT68_9rXf1NuDhintMxFk5M2lW1K1nMChkiUtxqj_aWUQ/s400/mrr_premium_series_a.png" width="400" /></a></div>
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<a href="http://www.twilio.com/">Twilio</a>, <a href="http://www.workday.com/">Workday</a>, and <a href="http://www.zendesk.com/">Zendesk</a> have shown that the best SaaS companies can get to $100M in ARR in 6-7 years and continue to grow at around 50-70% year-over-year after hitting that milestone. <a href="http://www.slack.com/">Slack</a>, unbelievably, reached $100M in ARR <a href="https://medium.com/startup-grind/growing-as-fast-as-slack-195c1e194561#.j5atz98am">just 2.5 years after launch</a>. Slack is an outlier even among the outliers, but getting to $100M in about seven years and hitting $300M 2-3 years later is the type growth which the best investors in the Valley are looking for in 2017.<br />
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I didn't have to make a lot of changes to the napkin to reflect this since the growth rates that I had put into the 2016 version were already in line with the <a href="http://christophjanz.blogspot.com/2015/03/how-fast-is-fast-enough.html">"T2D3 path"</a>. I've increased the Series B amount, valuation and MRR range, though, and because the expectations of later-stage investors trickle down to the earlier stages I've changed the ARR potential number in the "Seed" column from "$100M+ ARR" to "$100-300M+ ARR".<br />
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<b>2) Being a workflow tool is no longer enough</b><br />
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Investors are increasingly questioning if you can build a large and long-term sustainable SaaS business by being primarily a workflow tool. The thinking is that every successful software product will eventually be commoditized because it attracts lots of people who will copy the product and offer it for a lower price. That concern isn't new, of course, but given how crowded most SaaS categories have become by now, investors are increasingly looking for additional ways to build moat around a business.<br />
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So if you want to raise capital for your SaaS startup in 2017, investors will wonder if you can become a true system of record, build a real platform/ecosystem/marketplace or build a unique data asset over time. The latter option will get particular attention this year, so I highlighted that in the "Defensibility" row of the napkin. The ability to gather large amounts of data from the entire user base, and use that data along with AI/ML to make your software smarter, is one of the big themes at the moment. For what it's worth, I know AI and Machine Learning are a hyped topic but I think the hype is justified.<br />
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You might think that some of the things that I've written here – getting to $100M ARR within a few years, thinking about $300M ARR at the seed stage – are just crazy. I won't argue with that. The vast majority of SaaS companies will never get to this level of growth or scale, and yet they can be successful and profitable companies that generate life-changing wealth for the founders and great returns for early investors. VCs need outliers to make <i>their</i> business model work, but that's not <i>your</i> problem. If you think you don't have strong potential to become one of these crazy outliers, maybe VC isn't right for you.<br />
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OK. Enough words. Here's the 2017 SaaS Funding Napkin!<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMTeHlFvCh4nVltSAeWBORiYpk5fkhqpZ7Un4QOhGEuzKPiFUcGj6j2pIjdAWuHX8FRH1Usr0ZVjFUQAW7IvD1fGdcPoorh9a55YlkjNXA__djAnbVkqj-hSK_8yRbh9lj1Hjk/s1600/SaaSNapkin2017.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMTeHlFvCh4nVltSAeWBORiYpk5fkhqpZ7Un4QOhGEuzKPiFUcGj6j2pIjdAWuHX8FRH1Usr0ZVjFUQAW7IvD1fGdcPoorh9a55YlkjNXA__djAnbVkqj-hSK_8yRbh9lj1Hjk/s400/SaaSNapkin2017.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">(<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMTeHlFvCh4nVltSAeWBORiYpk5fkhqpZ7Un4QOhGEuzKPiFUcGj6j2pIjdAWuHX8FRH1Usr0ZVjFUQAW7IvD1fGdcPoorh9a55YlkjNXA__djAnbVkqj-hSK_8yRbh9lj1Hjk/s1600/SaaSNapkin2017.png">click here for a larger version</a>)</td></tr>
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-22073869109216494832016-12-28T01:51:00.001+01:002016-12-28T01:51:38.808+01:00What we're looking for in SaaS in 2017As the year is coming to an end I’d like to share a few thoughts on what we’ll be looking for in the SaaS world in 2017. This is not meant to be an exhaustive enumeration but rather a brief outline of a few big themes that I feel particularly strongly about.<br />
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<b>1) Viral growth and/or negative churn</b><br />
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In the last couple of years I’ve come to the opinion that in order to build a SaaS unicorn you need to have either (a) a highly viral customer acquisition engine or (b) significant negative net churn (that is, a dollar retention rate significantly above 100%). The rationale behind this statement, which might seem odd at first sight, is actually simple math. If you don’t have negative net churn you’re losing an increasing amount of MRR every month to churn, simply because your churn rate is applied to an ever-increasing base. That means that as long as you have positive net churn, you’ll have to add an increasing amount of new MRR from new customers every month <i>just to offset churn</i>. As you’re getting bigger and bigger it will become extremely difficult to maintain a high growth rate if you have to replace an ever-increasing amount of churn – unless you have an inherently viral product.<br />
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At a somewhat theoretical level, what I’m saying is that since net churn MRR grows as a function of your MRR base, you better have a mechanism that lets you add new MRR as a function of your existing base as well. I know this is a somewhat simplified way of looking at it and I’m sure there are a few exceptions to this rule, but I’m convinced that almost all SaaS startups that want to become big should strive for viral growth, negative churn, or both.<br />
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Related posts (from this blog):<br />
<ul>
<li><a href="http://christophjanz.blogspot.com/2015/02/why-most-saas-startups-should-aim-for.html">Why (most) SaaS startups should aim for negative MRR churn</a></li>
<li><a href="http://christophjanz.blogspot.com/2015/03/how-fast-is-fast-enough.html">How fast is fast enough?</a></li>
<li><a href="http://christophjanz.blogspot.com/2014/10/five-ways-to-build-100-million-business.html">Five ways to build a $100 million business</a></li>
</ul>
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<b>2) Obsessive focus on user experience</b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhDEYTWVNKTmEoGJWaFX3tB4ekq6Hs8dCqeWWTxNdvYZWM1c3-l3wVJV580O6QYOt9QgaOcH4hWoJN2UdOUv6-ag6tgtuP-lSpNFSnx7dc6DJwb17QaT6uNkK0ibrWaYAcf8cD/s1600/1gomaz.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="163" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhDEYTWVNKTmEoGJWaFX3tB4ekq6Hs8dCqeWWTxNdvYZWM1c3-l3wVJV580O6QYOt9QgaOcH4hWoJN2UdOUv6-ag6tgtuP-lSpNFSnx7dc6DJwb17QaT6uNkK0ibrWaYAcf8cD/s200/1gomaz.jpg" width="200" /></a></div>
Companies like <a href="https://slack.com/">Slack</a> or <a href="https://www.zendesk.com/">Zendesk</a> have shown that a superior user experience can provide a decisive competitive advantage and can become a critical success factor for SaaS businesses. Pundits might object that you don’t win enterprise customers by having a prettier interface. I think that’s shortsighted for at least two reasons.<br />
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First, user experience is not only about making the UI more beautiful. As legendary UX expert <a href="https://www.nngroup.com/articles/definition-user-experience/">Jakob Nielsen defines it</a>, “user experience encompasses all aspects of the end user's interaction with a company, its services and its products”. An excellent user experience requires an elegant product that meets the needs of the customer and is a joy to use, but it goes beyond that. The design of your marketing website, the tone of voice of your marketing emails, interactions with customer service – all of this is part of the experience that you offer.<br />
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Second, today more and more buying decisions are made by the actual users of the software (e.g. someone in marketing looking for a marketing automation solution) as opposed to the IT department. When the buyer is also the user, usability becomes one of the key decision criteria.<br />
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This decentralization of software buying, which has led to the consumerization of enterprise software both from a product as well as a go-to-market perspective, is maybe the most important driver of change in the software industry that we’ve seen in the last 5-10 years. But it’s far from over. Millennials arguably have even less tolerance for slow, bloated, ugly enterprise software. If you grew up with UBER and Spotify, if you’ve never ordered a cab by phone and never went to a store to order a CD, chances are you expect your work software to work flawlessly as well. :-) As millennials continue to rise up the ranks, a focus on great design and a delightful user experience will become even more important for software companies.<br />
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Two of our most successful SaaS investments to date, <a href="https://www.zendesk.com/">Zendesk</a> and <a href="https://www.typeform.com/">Typeform</a>, owe a large part of their success to what I like to call a “10x” improvement in user experience over the status quo. It will be extremely interesting to see which companies can accomplish a similar quantum leap in 2017 and how it will look like. Will it be a SaaS solution with voice as the primary form of input? A mobile-first SaaS app that truly leverages the smartphone’s camera, sensors and other applications to provide a 10x better user experience? Or a software with a conversational interface, powered by a bot? I don’t have the answer, but I’m pretty sure that new ways to input data – methods that are more natural than dropdown menus or smartphone keyboards – will be a part of it.<br />
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Further reading:<br />
<ul>
<li>David Skok, <a href="http://www.forentrepreneurs.com/consumerization-of-the-enterprise-phase-2/">Consumerization of the Enterprise – Phase 2</a></li>
<li>Mark Suster, <a href="https://bothsidesofthetable.com/the-coming-shift-in-enterprise-software-17bdfd61ebb2#.wiedjuo8a">The Coming Shift in Enterprise Software</a></li>
<li>SketchDeck blog, <a href="http://sketchdeck.com/blog/how-design-impacts-the-psychology-of-sales">How design impacts the psychology of sales</a></li>
</ul>
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<b>3) Smarter software and more automation</b><br />
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Up until recently, the main job of software was to make people more efficient by digitizing paper-based processes, doing calculations and enabling more efficient communication inside and between companies. This has led to huge efficiency gains, and I honestly have no idea how companies used to be operated without computers until 40-50 years ago.<br />
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And yet, the biggest disruption is still ahead of us. I am, of course, talking about artificial intelligence (AI). How long it will take until AI will reach human intelligence – or if that’s never going to happen – is an extremely interesting topic that goes far beyond the scope of this post (and of course one that I’m not an expert in). It’s safe to assume, though, that software is getting better and better at more and more tasks which were previously thought to be impossible for computers to learn. <a href="http://www.nytimes.com/2011/02/17/science/17jeopardy-watson.html?pagewanted=all&_r=0">Watson’s victory against two “Jeopardy” champions</a> a few years ago and <a href="https://www.scientificamerican.com/article/how-the-computer-beat-the-go-master/">AlphaGo’s win against one of the best Go players</a> are two legendary examples, but there are lots of other, less publicized cases, of computers winning against humans.<br />
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If close to 50% of jobs will be done by computers in the not too distant future, as <a href="http://www.oxfordmartin.ox.ac.uk/publications/view/1314">an Oxford University study suggests</a>, this will of course have unprecedented consequences for our society. How those consequences will look like, and if the net impact will be positive or negative for most people, is another extremely interesting topic that I’m not going to delve into here. What’s clear is that this disruptive force will create enormous opportunities for SaaS companies.<br />
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With today’s software it can sometimes be hard for a SaaS startup to prove the ROI of its product to prospective customers. Putting a dollar sign on the efficiency gains that a customer can realize by using your software can be difficult, and your product may provide lots of pretty intangible benefits that are hard to quantify. Now imagine that your SaaS solution allows your customers to get work done with significantly less people or maybe no people at all. In that case, the ROI will be pretty obvious.<br />
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What if future versions of sales automation software will not make your sales force more efficient but <i>become</i> your sales force? I can’t imagine how bots could take over sales calls … or wine and dine with a client. :) But think about jobs like web-based prospecting, lead qualification or email campaigns and the idea starts to sound a lot less far-fetched.<br />
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Although we developed a strong interest in AI in the last few years we have not yet seen a large number of “AI startups” that we fell in love with (one notable exception is our portfolio company <a href="http://www.candis.io/">Candis</a>, which is automating accounting work). This could be because the industry is still at a nascent stage or because it’s still early days for us in terms of learning and developing an investment thesis around AI, or both. In any case, we’re excited to spend more time on this topic in the coming year!<br />
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Further reading:<br />
<ul>
<li>Carl Benedikt Frey and Michael A. Osborne, <a href="http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf">The Future of Employment</a></li>
<li>Nick Bostrom, <a href="https://www.amazon.com/Superintelligence-Dangers-Strategies-Nick-Bostrom/dp/0198739834/">Superintelligence: Paths, Dangers, Strategies</a></li>
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0tag:blogger.com,1999:blog-18867375.post-58816258726762306442016-11-23T23:36:00.000+01:002016-11-25T09:13:21.916+01:003 (free) tools to help SaaS founders with their 2017 planning<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: right; margin-left: 1em; text-align: right;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeUGnG0cdACj9-2bTixBk0RUFKINpk47cax1ze_9wlapigzi2HYi1_1bvS3stZSlDqFLousKMeN9cz4YQQS2918G3ja6xs7Ocvi9XenhZasuCmmDB7RL2Ae8f3tY3Of2R2ZXMd/s1600/placeit.jpg" imageanchor="1" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgeUGnG0cdACj9-2bTixBk0RUFKINpk47cax1ze_9wlapigzi2HYi1_1bvS3stZSlDqFLousKMeN9cz4YQQS2918G3ja6xs7Ocvi9XenhZasuCmmDB7RL2Ae8f3tY3Of2R2ZXMd/s320/placeit.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">(As you can see, I really like placeit.net :) )</td></tr>
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In case you haven't started to think about your plan for 2017 yet, now's the time. To help you a little bit with your planning, here are three little tools that you might find useful. If you're a long-time reader of this blog, you may have seen them before.<br />
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<b><span style="font-size: large;">1. Growth Calculator</span></b><br />
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This little tool allows you to enter your MRR as of the end of 2016 and a target growth factor for 2017. It then calculates your MRR target for the end of 2017 and shows you three different growth paths that lead to that goal. One is based on linear growth, one on exponential growth and the third one shows a trajectory between the linear and the exponential path.<br />
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<ul>
<li><a href="https://docs.google.com/spreadsheets/d/1ldYawoy1NAdX8HdHvTsnqn2niEaa5egr4qlAm6HSUyE/edit?usp=sharing" target="_blank">Growth Calculator</a> </li>
<li><a href="http://christophjanz.blogspot.com/2015/12/a-simple-tool-to-improve-your-2016.html" target="_blank">Original blog post</a> from last year with some additional notes</li>
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Please note that although this Google Sheet may <i>look</i> a bit like a financial plan, it's not meant to <i>be</i> your plan. :) To create a credible and realistic plan, you need to have a "bottom-up" projection of your growth drivers (e.g. your conversion funnel, distribution channels and sales team quotas). What this little calculator can do is quickly give you a sense for how much MRR you have to add each month in 2017 in order to reach your growth targets, so you can use it to play around with different scenarios and assumptions.<br />
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<span style="font-size: large;"><b>2. Sales Team Hiring Plan</b></span><br />
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This tool helps you find out how many sales people you need to hire in 2017 based on your growth targets and other import inputs such as your MRR churn rate, your sales team's quota, ramp-up times, etc.<br />
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<ul>
<li><a href="https://www.dropbox.com/s/a198p4w8yjese30/SaaSSalesTeamHiringPlan2017.xlsx?dl=0" target="_blank">Sales Team Hiring Plan</a></li>
<li><a href="http://christophjanz.blogspot.com/2015/06/by-time-youre-at-2-3m-in-arr-you-need.html" target="_blank">Original blog pos</a>t with some additional background</li>
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The model is based on an exponential growth path (i.e. #2 from the Growth Calculator above), i.e. it works with a constant m/m growth rate, which you can set in cell D11 and D12 for 2017 and 2018, respectively. You can easily adjust this to a different growth path by changing row 22 accordingly.<br />
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One of the things which the model doesn't take into account is employee turnover. In sales teams, employee churn can be significant, both because not every sales person that you hire will work out and because the average tenure of an AE might be only, say, two years. When I tried to add this to the model it became too complex for what I think should stay a pretty simple template. I might give it another go later. In the meantime, I'd recommend that when you build your own hiring plan, assume that if you need x AEs you'll have to hire n*x AEs, and that n is probably something between 1.1 and 2, depending on how good you are at hiring salespeople.<br />
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<b><span style="font-size: large;">3. Financial Plan</span></b><br />
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This template helps you create a full financial plan that includes everything from revenue modeling to costs projections and headcount planning. If you look at it for the first time, it might look a little terrifying. I did try to keep it as simple as possible, but if you prefer a simpler version I also have an older, less sophisticated alternative.<br />
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<li><a href="https://www.dropbox.com/s/1pbdqraz6tke84u/SaaSFinancialPlan2.0.xlsx?dl=0" target="_blank">SaaS Financial Plan 2.0</a></li>
<li><a href="http://christophjanz.blogspot.com/2016/03/saas-financial-plan-20.html" target="_blank">Notes on the 2.0 version</a></li>
<li><a href="https://docs.google.com/spreadsheets/d/1DA2W_MShVOhErdNk-429vq02MqNMqM1kYLk7bwjGEhg/edit" target="_blank">SaaS Financial Plan 1.0</a> (the original, simpler version)</li>
<li><a href="http://christophjanz.blogspot.com/2012/03/financial-planning-for-saas-startups.html" target="_blank">Notes on the 1.0 version</a></li>
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I hope you find some of this useful. Happy planning!</div>
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<br />Christoph Janzhttp://www.blogger.com/profile/07905463949262014311noreply@blogger.com0