David Skok: 12 Key Levers of SaaS Success (Video + Transcript)
David Skok, General Partner at Matrix Partners, takes the tactical stage and touches upon many different SaaS metrics and levers, like productivity per rep and product market fit. Anyone who’s heard him talk before knows that he’s the perfect person to talk teach us about SaaS metrics. Founders can use the simple funnel model he outlines to understand how to drive growth and success in a SaaS business.
Part of that is focusing on the right things, like fixing conversion rates rather than just bringing more people into your free trial when it’s only converting at 5%. Want to close more leads? Stop approaching sales in the same way over and over again. There’s a smarter, more fruitful way to sell a customer without making them feel like they’re being sold to. Want to scale without growing too fast? Build a recruiting machine that’s exceptional at attracting Grade A talent.
There is a ton of useful information in this session that you can use to improve your business right now; you won’t want to miss it!
You can see David’s slides here.
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David Appel: Good afternoon, everyone. My name is David Appel. I’m the Head of the Software and SAAS Vertical at Intacct, which is the world’s largest, independent, pure cloud ERP firm. We are the sponsors of the technical stage today.
It’s my pleasure to introduce our third session on the tactical stage, “12 Lessons to Learn to Scale up your SaaS Company,” led by David Skok, who’s a general partner at Matrix Partners. He’s been there a long time, many successful investments. He’s learned quite a bit that we can all apply in our businesses.
David and I were prepping for all this. We spoke a moment about a recent board meeting he’s had. Has anyone ever missed the number before?
David has been setting him up for his discussion, that’s a bad feeling. What can you do to not only know the lagging indicators on what the health of your business is, what the predictive indicators of what the health of your business is?
You and your management team, for those of you on the management team, make your CEOs look good, for your CEOs, make your team look good. Go in with some confidence, going knowing what the metrics are, and then what you can guide, where you can guide the business.
With that, I’m going to introduce David to share those thoughts with us. Please welcome David Skok.
David Skok: Thank you very much, indeed.
David: Good afternoon. It’s a huge pleasure for me to be here. First of all, I get a chance to meet so many people who have commented, and read, and given me feedback on my blog.
I just want to say thank you to all of you. You’ve been an amazing inspiration over the years to keep writing and keep putting out information. Thank you.
Today, I’m going to do something which is very different to what I did last year, if any of you were here last year.
I’m going to try to do something simplified which is come up with an incredible straight forward way to look at a SaaS business which allows the whole company to snap to the same grid, and get aligned, and drive the right kind of performance that you’re looking for.
The second thing I’d like to do is show you which particular levers, as the CEO of that business, you can push on to get the most impact in running your business. That’s the goal that I have today.
Before I do that, I just want to jump into a tiny preamble to help maybe set the stage of where I’m talking about. I think of a SaaS startup, actually any startup is having three phases.
The very first phase has been written about enormously and that is the search for product market fit. Everybody, I’m sure, knows the Lean Startup and all of the stuff on that. I believe that phase is followed by a second phase which I call the search for repeatable, scalable, and predictable and profitable sales growth machine.
Once you’ve got that predictable growth machine, you should hit the gas and just scale the business because you know that it’s predictable. You know that it’s profitable and it just works. I think the most interesting part of this is the second phase. That’s really where I’m going to be talking about today.
I apologize if you’re in the product market fit stage. Some of this won’t be relevant to you. That’s where we’re going to be concentrating on. Let’s just define what it means to exit this stage. What do you need to be able to claim that you’ve got this predictable, repeatable? The words really describe it.
It is predictability. It is repeatability. It is the fact that it’s a profitable growth model that you’re running. Maybe one of the best signs that you’ve got there is that you have the ability to grow bookings quarter on quarter as opposed to you can grow ARR quarter on quarter. You can do that with same bookings level quarter after quarter.
One of the common questions that I ask CEOs to get them thinking about this is, what happens if I wanted you to grow your ARR by six times, not your business plan which is probably two and a half times, what’s going to break? What’s not scalable in there? It’s a great way to start thinking about where the next problem is going to crop up here.
With that in mind, let’s go to the first thing that I said I was going to try to do for you, which is, give you a simple model to really try to understand your business and align everybody who’s working in the company around one simple thing.
The good news is the model that I’m going to use is something everybody is familiar with, which is a funnel.
This is a very straight forward thing. The complete model for a SaaS business has, not just the top of the funnel part of it where you get to the close customer, but obviously very importantly, we want to retain that customer and we want to grow revenue from that customer. It has this bottom of the funnel part to it as well.
One of the things that I absolutely love about funnels is that they’re driven by very, very simple math. The math that we’re looking at is two variables. There are a couple of others, but the two really important variables are how many things do you put in at the top of the funnel and then what’s the conversion rate that you go and drive in terms of that number?
If you’ve got 100 people in the top and you get one accurate conversion rate is one percent on that funnel then. This is pretty cool that we can define and drive our whole business around one simple model and two variables. Isn’t that amazing? That’s a very nice thing when you can simplify life.
Now, I will give you that there’re a couple of other variables that matter in here, the average deal size determines the amount of monetization you’re getting per customer, obviously great if you can make that bigger over time.
How much does it cost you to run somebody through the funnel, does matter. How long does it take to put through the funnel? I’m going to leave those as secondary variables and keep focusing on the top two which is what’s our flow in the top and what’s our conversion rate?
Let’s start by looking at the two kinds of sales motions that I see in SaaS businesses. The first one is a very simplistic touchless model. This is the thing that ZenDesk had in the early days, Dropbox had in the early days. You don’t use sales people as a fundamental part of how you drive sales here.
Later on, we’ll come to look at the model where you do use sales people and look at how they differ a little bit then.
In the touchless model, the simple way of looking at the funnel here is that you have a bunch of leads that you put in. You drive them to your website. When you’re on their website, you try to convert them into a free trial. You want your free trial to convert into paying customers for you.
If you’re going to have one of those funnels, I’m sure every one of you knows that you couldn’t come to a presentation by David Skok and not hear something about metrics.
Metrics are important here. The key metrics are pretty simple. What is the number of people flowing into each stage there? How many people are coming to your website? How many people are going to each trial? How many are converting into closed deals?
You want to track that over time so you can see whether you’re trending in the correct direction. Of course, as we mentioned the second variable which is conversion rate, we want to track how well are our visitors converting to trials and how well are our trials converting to paid?
We want to track that over time. The overall conversion rate is useful to know. When you do that, you start to realize that we may have different sources for our leads. We may be using Google in one. We may be using inbound marketing. We may be using Facebook ads. It’s worth recognizing that the shape of the funnel can vary by lead source.
Also, potentially the type of customer you get out of certain lead sources. You may get very big customers out of certain lead sources and not out of others. You want to look at the overall ROI for each of these lead sources to get a feeling for which of those are working for you. My advice when I talk to startups is, fix the conversion rate first.
It is the most important thing to start working on. If you’ve got a leaky bucket where you’re bringing a ton of people in to your free trial and only five percent are converting, there’s not much point in pouring more people in there. Fix that conversion rate on that trial before you go further.
As a very quick pointer on that, I would say the number one place to start is how good is your product market fit? Think about here, what can the product team do to overall change the value proposition so that that’s resonating better?
Something that’s amazing that we’ve seen, that’s worth putting work into is understanding which customer segments are the right fit for what you currently have. This will change over time as your product gets bigger, and better, and supports more integration.
For example, if your product initially only supports Shopify and Google Analytics, then your ideal customer does not have Adobe Analytics. That’s going to be another integration. You won’t get very far on the sales cycle with them.
Cut down, narrow down, slice down, what is the ideal size of customers, what parameters they have and focus on them.
The place where I think an awful lot of companies need help with work on is the simplicity of their messaging. We’re all product people. We get so carried away with describing the cool features that we’ve built in our products and we miss the fact that the business buyer doesn’t give a damn about that. They’re actually out there trying to solve a business problem.
Finding a way to convey the business value of what you’ve built in simple terms that the customer relates to is something that I think a lot of product people struggle with. This is worth putting a bit of energy into it because it can dramatically help with this conversion rate thing.
Here is the most fun part of what I would hope to engage with you guys on today. Every single funnel I’ve ever looked at has blockage problems. The quickest way for me to find out where your funnel blockage comes from is to ask you, “What would happen if I wanted you to 10X revenues in the next 12 months?”
You would immediately tell me, “Well, we’re actually not going to be able to do that because of X or Y.” That will tell you quickly where to hone in. Even Microsoft, even Google, they all have a blockage point. If you fix it, it’ll just simply move somewhere else.
What I’m going to share with you something that I’ve learned over the years of going and talking to startups is that there is a common source of these problems that I found in many of these visits that I’ve done. It is that they’ve built a vendor centric design of funnel.
They designed the funnel by coming to a conference like this and listening to loads of people telling them, “Well, you’ve got to have some SDRs. You’ve got to do inbound marketing. You need some sales reps.” They’ve heard this whole bunch of things. They go back and they say, “Well, we’ve got to have a funnel that has all of these elements.”
So they design the funnel around those elements. I’m going to show you what I think is a better way to go about that. Let’s take a look at what happens here. Our problem when we do this is we run into the blockage point because we want the customer to do something, but the customer is not actually motivated to do what we want them to do.
This basically comes back to the problem that we’re talking about, you design the funnel the way you wanted it to work, not around how the customer wants to work. Let’s see if we can help shine some light on how to change that. I’m going to give you one little example to start off with here.
Some of you might have heard of a company called JBoss that made the application server for Java that was open source that disrupted BEA WebLogic and IBM’s WebSphere. I worked with these guys when they were about 11 people in a room in Atlanta. When I first went to see them, it was a fun meeting because they had incredible success.
We were hearing about them everywhere. Every portfolio company was using them. They had five million downloads that had happened. I said, “That’s terrific. We’ve got an incredible base of people we can start marketing to. Do you have the database of who all these people are?” They said, “No, we don’t have the database.”
I said, “Well, did you ever try asking for an email address before they did the download?” They said, “Yeah, we did, but it cut the download rate by a factor of 10.”
Clearly, you understand why people would not want to give their email address. Everybody is fed up with being spammed. It’s the last thing you want to do. What was going on here?
Let’s take a look at how to think about things. I have a model that I hope will be useful to you guys. I found it to be incredibly powerful where on one of these blockage points, what I do is I look at two factors. What’s the friction that this step requires for the customer to go through? Secondly, what concerns do they have that’s stopping them from going through this point here?
In our case, we’re dealing with a concern of being spammed. We’ve got two options when we start dealing with a problem like this. What we could do is redesign the step. I’ll show you a few cases where we’ve redesigned the step or alternatively, if you can’t redesign the step, you then have to come up with a motivation that is big enough to pull them through their concerns.
Literally, you see companies using money here. You offer to give a free iPad for people to put their business cards into a bowl at a trade show as one example of that.
I don’t like using money or bribes like that. I think they’re smack of a cheap form of sales tricks. I’m much more interested in using something more valuable.
In the JBoss case, we looked around for what value did they have that they could use to break through this. The answer was they were selling the documentation for $27,000 every month. They were very addicted to that revenue stream. It was a small company, that was paying the bills and they would break even on that.
After three months of working and arguing with them, they finally said, “OK, we’ll give that as the incentive to get the email address.” Bingo, that’s switched on 10,000 leads a month flowing into the company. They shot to 65 million in ARR in two and a half years. That was an amazing success story. That was one of the key unlocks in the story.
Let me give you a completely different example here. Every one of you, I believe, faces the problem of how do I get more traffic to my website. Fundamentally, people are just busy. They don’t have the time to be looking and researching. They don’t incented to do go and research for your particular product out there. This getting found problem is tricky.
Let me give you an example that I think everybody knows in this audience, but it’s still useful to talk through why it works and what are the parameters behind it.
This is HubSpot which is a company that I was lucky to be on the board of in the early days. They came up with this tool that was free called Website Grader. The way Website Grader works was pretty simple.
You put in your URL. If you wanted, you can put it in your competitor’s URL. It’s a very simple data entry. You click the generate report button, and it runs through your website and it produce this incredibly rich, detailed report of what was wrong with your SEO on your website.
In doing that, when it finished the report something super important popped out at the top right there, a score. Unfortunately, this score is high because this is my own blog.
The average person would get a 55 or a 50. Guess what? You’re all Americans. You’ve all been to school in America. What do they teach you if you’ve got a bad score? Guilt, right? You feel bad.
You’re now under worry that your boss might discover that you’ve got this bad score. You’ve got to trigger…This is a super important thing in the buying cycle which is can you trigger, with your marketing, somebody to switch out of simply being in the mode of thinking about or researching, just generally becoming aware of something. Can you trigger them into actually going into a buying process?
This score actually helps to achieve that particular thing for you. They start thinking, “OK, I ought to try and fix this. Who do I turn to?”
“Well, this company has just shown me that they’re very good at this. They clearly know what they’re talking about. They’ve earned my trust enough to want to talk to them. They’ve done something else. They’ve given me value before they’ve even started to try to sell to me.”
The lessons here, I’ve already gone through a couple of them. Free tools help you drive viral spread. Low customer work required, high value delivered.
The score acts as a trigger. It builds trust through the fact that you’re demonstrating your expertise in the process of doing this. To me, there’s another really big deal out of this particular tool. That is that the product team were the guys who built Website Grader, not the marketing people.
What I believe has to happen to make marketing successful is that it isn’t just marketing.
It is marketing plus sales, plus the product group. HubSpot have come up with a cool name for it now. They call it Sparketing. It’s a combination of all of those things. Most important to me is the fact that, if you want to create value for you customer, here the marketing guys try to write a white paper. That ain’t that valuable.
If you got the product guys to build something that actually does something cool for the customer, that’s 10 times more interesting and can drive a lot more of the lead flow that you’re looking for there.
That’s one way of looking at this here. The second thing that I want to look into to is that when we think about funnels, right now we think about them at a very high level.
I describe the funnel as visitors, free trial, close deals. That’ll be a three step funnel. If I drew it as a three step funnel, I would miss the really big issues and the opportunities for change. We need to actually go into what I think of as a micro funnel or a breakdown of one of these key steps here.
Anything that’s broken, your greatest blockage point, what I’d like you to think about doing is going and drawing the micro funnel for that. Let’s take the free trial in this particular case because that’s what many of you use even if you’re using salespeople. Let’s break that down into the key steps here.
I’ve just a very simplistic one at this point in time as an example. I was working with one of my portfolio companies last week, actually after I’ve done these slides on this very thing with them.
Let me describe the company first. It’s called Salsify, and they manage the product data that brands need to move across to retailers, like Walmart, and Target, and Amazon to be able to get their products into the online website.
It’s a hugely broken process. The most broken process is generally at the brand side. They don’t have the information that they need, and they can’t get it into the right format.
They do a free trial with a brand. They would complain to me that the very first problem they had was the customer opens up their product. It’s a very rich, sophisticated product. It opens up with a blank screen, no data in it, and there’s no guidance in there to tell them what to do or how to get through this trial. It’s a problem.
Now the guidance part of it is not the biggest problem, the biggest problem for them is the fact that they don’t have any data in there.
To get that data in, they don’t have control of how long that’s going to take. It could take months, actually, while the customer tries to struggle to get this data in that.
The first thing we talked about was something they’d already thought of, which is we can actually get out onto the web and scrape that data from available places where these products are actually currently being sold and pre populate this database.
The moment they switch it on, it’s got in the current data that’s available. We can then score them on how well their data ranks against what we know to be best practices that gets your product sold well so the score can act as that trigger point to motivate them.
We still had a problem there, which was, they still need to enrich that data by adding in all the missing pieces before they get to the Wow moment. The Wow moment is a super crucial thing in free trials.
The Wow moment is worth paying attention to. It’s the thing that you need to demonstrate to your customers to make them feel comfortable if they press the purchase button, that this thing’s going to work for them.
Understanding, first, the starting point is, what is your Wow moment? Have real clarity about that. Secondly, recognize that different buyers might have different Wow moments, so you might need different paths to navigate through your product to get to what they’re looking for.
A little example of what I’m describing there is, I used to work for an HR company, and they had buyers who would approach their product primarily looking for a payroll thing, some would primarily be looking for an HRAS. They needed to differentiate between those and take them through different guided tour.
Let’s go back to Salsify for a second. In that particular thing, the key Wow moment is not the first time that they publish this newly enriched data to one of their vendors.
It’s the time that they publish it to the second channel because that is just a single click, whereas previously they’ve got to reformat it into the special format that Amazon needs, or the special format that Walmart needs.
That’s ages away. This was a horrible process, too long, in the customer’s control, not in your control. I asked them, “Was there a way that we could, maybe, get a Wow moment straightaway based on this pre-populated data that’s straight from the Web?”
They realized, “Yes, there was,” because Google is trying to compete against Amazon as being the first place that you start when you’re doing a product search.
If they publish this data to Google’s new API that they’ve worked on with Google, these companies could immediately get some new visitors and new customers coming to them through Google’s search that they wouldn’t currently get.
That would give them an instantaneous Wow out of the free trials. Zero work and way short in time to Wow. What were we doing when we were going through all of these analyses here?
We were basically putting ourselves in the mind of the customer, not ourselves. Not doing vendor oriented design, we were doing customer centric thinking here. How is the customer reacting to and thinking about everything we’re asking them to do?
What is painful? What has friction? Which of these steps is the customer going to be concerned about? How can we shorten the time? How can we remove the friction? How can we take out the concerns, etc.?
I’ve managed to, in umpteen dozen meetings with different companies, by applying this simple way of thinking about things to come up with insight after insight that seems to have helped people get through major breakthroughs in their funnels. That’s been, hopefully, something that will work for you guys.
Before I jump off of this, how many people in this audience are using SDRs or plan to use SDRs as part of their sales process? You can just raise your hands. That’ll give me a quick sense of it. A lot of people.
Let me ask you something. When a sales rep calls you, as a customer, how do you feel about that? You hate it. Thank you.
By the way, I’m a believer is SDR. Why am I recommending to my portfolio companies that they use SDRs when we’re going to get them to do something that the customer hates?
They hate being sold to. They hate having sales calls and cold calls happening to them. How do we fix that? Let’s apply my same way of thinking here. Let me give you another little thought that I have.
I believe that the best way to sell is not to sell. It’s to treat the customer like a bank account. Make a deposit in the bank account before you ever try to make a withdrawal. Create some value for them first.
What does it tell me about the SDR? It tells me that I need an intermediate thing that is valuable to the customer, that has no selling in it at all, that my SDRs can use to create a relationship with a customer.
Ideally, after I’ve created a relationship, I want to create trust with the customer. If I successfully create trust, I will actually end up in a consultative selling situation with them, without ever having started to feel like I was selling.
The problem we have is that most of our sales guys are so trained to sell, that the first thing they want to do is talk about the features in the product. They’re terrified that if they’re not doing that, they’re not doing their job, right?
We’ve got to change their behavior. We have to find an intermediate thing. The intermediate thing could be something educational that you invite them to. It could be something like data that you give them that’s interesting. It could be a meeting with peers, that they like to meet with but they can’t do ordinarily.
The key thing is don’t mix selling at all in that intermediate thing because you will blow it.
In the same way that if a speaker is up on the stage, and you came and paid money to come to the stage to hear educational stuff. If I started speaking to you about a product and selling, you’d get very turned off. It’s not what you came here for. It’s a no-no, yet we keep doing that in our sales cycles.
We keep going to selling way too quickly, way too early before we’ve earned the relationship and the trust. There’s another example of how to re engineer something in your funnel, from the customer’s standpoint.
Ultimately, what I am showing you here is a way of starting with your customer, trying to understand what business goals they’re trying to solve first, then thinking about what decision criteria to arrive at our Wow moment.
What do they need to see from us before they’re ever going to feel comfortable to buy our product, and then designing around their buying process a funnel?
That is reverse to what I see most companies doing today. This is a fabulous opportunity for you to get some real improvements in your conversion rates here.
So far, I’ve talked about the simple case. Let me just move to the more complicated situation where in your sales funnel you actually use sales people.
In this previous simple thing, we had a nice piece of math working, which was, if we multiplied the number of deals coming in the top by our conversion rate, we got a nice linear relationship to how much bookings we would do in any particular quarter.
Sadly, when we bring in a sales person, we bump into a problem. A salesperson has a capacity limit. If we put in one salesperson, they not only have a ramp time, but they will then tap out in terms of how many people they can have.
What ends up happening is a unit of growth becomes how many salespeople do we actually have that are available to handle this inbound flow of leads and do that work? Our sales person is a starting unit for modeling.
I’m sure many of you have built models of how your company’s going to grow in 2017. You probably started by saying, “How many salespeople do we have? What’s the quota that they can achieve?
You probably looked backwards and said, “How many leads do we have to generate for the sales person, and how many support people do we have to have to support the customers that they sign?
That’s our unit of modeling in the SaaS business when we build a model. I want to look at the math behind this. The math is incredibly straightforward. It’s like the funnel. It’s two variables.
How many reps do we have, and what is our productivity per rep? Now we found two more key levers in the SaaS business model.
We go to the first one, which is, number of salespeople. I’ve written a blog post about this ages ago, but one of the most common ways that I see my portfolio company’s missing their sales plan is because they didn’t hire salespeople fast enough. They’re proud of it because, hey, they were in an expense conservation mode.
We didn’t burn that money with these hires that we could have had. We’re doing well. In truth, you’re not doing well.
One of the hardest problems to switch into when you start getting this repeatable model is realizing that you have to build a recruiting machine that is exceptionally good at bringing in grade A talent on time.
Let me show you a key metric that may be helpful to you to monitor this. The graph on the left is simple. How many reps do we have versus the plan number of reps that we should have?
That gap is a problem. Let me show you how it translates into dollars. On the right hand side, the dotted red line is the ideal quota that we should have based on how many reps we thought we would have had. Of course, we didn’t hire that many.
The blue line shows me what’s the real quota capacity that we’ve actually got in the organization. The green line will be your bookings. You’ll never actually hit the full quota. As you probably know, some of these salespeople will be great, but most won’t.
Let’s look at the key things that we found out. You lost, in this particular case, 500k in bookings because you missed your hiring plan. This is why this is an important thing to track here.
The second piece of data that you can get out of it that’s useful is the difference between your assigned quota, and how much you actually booked should start to predictably settle in at some level.
That settling number, in this case, I use an 85 percent number, will give you a great tool for double checking your sales forecast to make sure that…If you said in your 2017 plan, you’re going to do six million and you assigned a quota of six million, but in the past, you’ve only achieved 85 percent of quota, you’ve probably got an unrealistic plan.
You should take the six million and discount it by 15 percent. That you’re more likely to achieve actual number there, assuming you hire well. Hopefully, that’s helpful.
Productivity per rep is the second variable in a number of reps assigned to PPR, productivity per rep.
The key thing to focus on here is quality of sales hires. Again, if you don’t build a machine and you’re desperately hiring because you can’t find these people, you will end up hiring poor quality reps.
That’s, we all know, is a disaster because you end up actually wasting six months or so before you discover that they’re bad and taking them out.
The other thing that I think is fascinating for every one of you is, as founders, to think about here is, what can we do to increase productivity per rep when we hire these people? Sales training and onboarding is very powerful.
If we can put the founder’s time and knowledge of the business into creating an onboarding course to help teach them, that will have huge payback. Yet, we often don’t do that. We consider that they’re automatically going to osmosis, get the knowledge from us via osmosis. A nice opportunity for them.
Some quick charts that I have on this. Track your average productivity per rep over time and see how that’s trending. You could look at it based on the tenure of the rep.
You see three lines here, new reps, reps that have been with you more than year, reps that have been with you more than two years. That’s interesting and useful to know how that trends.
I always like this chart which shows we can pick colors by rep. How they’re doing quarter by quarter, so I can get feeling for “Am I really having a repeatable sales process?”
You can start to see in the last quarter there we’ve got enough greens on the board to see that actually we do have a repeatable sales process. We can actually start ramping this thing.
If you’ve got lots of reds, and you’ve only got a couple of superstars, don’t ramp because this is not repeatable, this is not predictable. It’s not scalable yet.
These, by the way, are HubSpot charts. I give the credit to them. They’re the guys who showed me these. They’ve been great for managing that business.
How many reps are about 75 percent of quota, and how’s that trending over time? How many reps are about 100 percent of quota?
I’m running out of time here, and I need to wrap quickly. One of the quick things that I will go through here, I’m sure all of you know this.
If you need to focus on how many leads have to be generated to feed the sales organization, we can do reverse funnel math using the conversion rates to get back realizing that one closed deal requires five opportunities, 20 sales accepted leads, 25 marketing qualified leads, 125 raw leads.
That becomes the way that we can compute how many leads have to be delivered to our sales organizations.
If they hit their hiring targets, marketing must hit its leads target. This becomes effectively the contract between your sales organization and your marketing organization for both sides to deliver on what they have to deliver on there. I don’t have a lot of time here to talk about the backend of the funnel. All I talked about last year was churn and negative churn.
I didn’t want to repeat that stuff this time around. If any of you are very focused on that, which you should be, may I refer you to what I talked about last year as a place to go.
Let me summarize this for you quickly. My top piece of advice for you coming out of this is that there’s this fabulous model, the funnel.
It’s a great way to focus your entire team on one thing and snap them all into alignment to deliver the thing that will make your company successful. If you run your funnel successfully all the way through, you will have a great SaaS business.
Things that I found here that are helpful is most people think they know their funnel, but when I ask them to draw it, something strange happens.
We get a lot of different viewpoints from people around the room. Funny, funny creative thinking starts to happen the moment they put these boxes up and they realize, “Oh my God, this is not a very good box. We could do this better.”
I’m not even doing anything there. I’d just simply ask them to draw it and they are solving the problems just by having it up on the whiteboard.
There’s a simple cool step that you can do. Break it into micro steps for the key parts. Bring your groups together, maybe it’s every two months, maybe it’s every quarter, but hold a meeting where you, the CEO, get the sales group, the marketing and the product group in there.
Talk about what’s broken in your funnel and how you might be able to improve it.
You will get some of the breakthroughs that I’ve been talking about here that change the conversion rate of your funnel for you.
Lastly, I apologize here because I think I’ve over run my time. I’ve got a few seconds then I can take some questions. What are these 12 key levers that I promised I would talk about?
Well, I have to say I’m not sure that the number 12 matches exactly. Let’s go through some of the ones that really matter here. Product market fit unquestionably can dramatically change the conversion rate and your funnel. That’s a great starting point then.
Secondly, top of funnel lead flow. Thirdly, conversion rate.
How much does it cost you to put them through the funnel? How many salespeople do you have and focusing on recruiting? What’s your productivity per rep? Do you have enough leads to support that number of reps that you have?
Lastly, for LTV, I didn’t talk too much about this because this is the backend that I didn’t have time to cover in much depth.
Pricing is super important so you can negative churn. You must have variable pricing so you could expand how much you’re getting from your existing customer base to cover the lost customers that you’ll lose through churn. Customer retention rate and dollar retention rate those are metrics for the backend of the funnel.
You will need cash to finance your business particularly if you want to grow. We’ve all talked about the cash flow trough in the past. The key metric that I found impacts how efficient you are on cash burn is the months to recover CAC. If you can reduce that, that’s very powerful.
Lastly, I’m sure all of you know this, but it’s unbelievably religious for us to focus on this. What we’ve seen is the great way to build a successful business, is to focus on who you hire and getting the quality of people that you hire right, and not sacrificing at all on that parameter.
I can’t emphasize, again, the importance of building this recruiting machine to allow you to see the very best candidates and to have a flow of them. When you come to adding people, you’re not scrambling to add people and therefore adding poor quality people into the organization. That’s all of my 12 points. I think I have a minute or two for questions.
One last thing, I think most of you know this, but I have a blog where I’ve been talking about the stuff for years. If you are interested, these slides are actually up and posted on the blog. There’s the link to them.
I have an incredibly hard time seeing you guys because of these lights that are in my face. Does anybody have any questions for me before I have to run? I see one hand here.
Audience Member: You said free tools are utilized a lot, or at least with some of your portfolio companies. How are you either scoring those leads or following up with them once you’ve got the email to enhance the conversion rate down the funnel after that point?
Skok: Yeah, I’m going to repeat the question because, most of you, I don’t think heard it. The question was, a lot of my portfolio companies are using free tools, how are they scoring the leads to know which ones to follow up with further on down the funnel?
What I’m seeing is a new term that again the HubSpot guys came up with called a PQL rather than an MQL.
All of you probably know MQL, marketing qualified lead. A PQL is a product qualified lead. The first thing that you know from a PQL is that they’re actually engaged with the product and they’re using it.
The second thing you might know is that if you look at the information they’ve given, are other people in that same organization using the product?
That gives you an indication of a higher score for a lead. A lot of them are using a number of data enrichments products that are out there. Clearbit is one of the ones that I happen to have very high faith in, but there are others as well.
They will be using Clearbit to enrich the information that they’re getting in the form of an email address to start then getting a full picture of the company.
You can score the company using other tools that are out there to have you understand. For example, Datanyze will help you know are they actually using some of the other tools that we already integrate with, that would give them a higher score than somebody who requires you to integrate with something that you don’t have that integration built.
There are many factors there that you can use to build an automated scoring machine and have your salespeople focusing in on just the very best leads for them. Hopefully, that helps with that answer there.
[View the slide deck here.]