Inc - What You Need To Really Scale

A ways back, I met with a sales leader I’ve known for years, and he told me The Most Curious Story.  His SaaS CEO asked him to stop selling so much.

“Slow down. You are doing too good of a job,” the CEO said.  “We can’t afford it.”

Now … how could this be? 

Well, it does make sense, when you understand the scenario, a combination of two things:

First, this SaaS company has a mix of freemium customers and sales-driven customers (with higher ACV, lower churn). The freemium ones really have no acquisition costs at this point (the main lead source is mini-brand).

The sales-driven customers are very profitable on a CAC basis, since their lead cost is $0, and so the ‘Magic Number’ or CAC/CLTV ratio is very favorable.

But … still … the sales team’s commissions consume cash in the very, very short term.

and

Second, this SaaS company had a very tight balance sheet.  About $1m in cash for a $5m ARR business.

And here, they just couldn’t safely invest. Because every $10k, $20k, $50k customer they closed … Hooray!! … but … that sales commission, just put them into Danger mode on the balance sheet. Even though in 4 months, they’d be in the Black here … for years to come …

A crying shame, really.

This is indeed the art of enterprise sales. 

Marc Benioff and his team were legendary at this. Many seasoned enterprise sales execs are good at it, too.  We’ve all been there in the early and even middle days.

The key is simply to acknowledge the gap — and if you are willing, commit to building what the customer needs within X months.

Enterprise customers are used to this. Sometimes, they will bite and agree. Other times, they’ll need more proof.

But it’s worth a shot if (x) you fill 90%+ of their need as is and (y) they also believe you to be the overall vendor of choice.  They’ll often wait for one feature gap to be solved.  If you really commit.

Buy one ticket, get the second one half off

Hey SaaStr Community,

It's the month-end, so this is your last chance to save big bucks on tickets to SaaStr Annual 2024 — the world's largest community gathering for SaaS and Cloud professionals — from Sept 10-12 in the San Francisco Bay Area.

Head to the SaaStr Annual site now to buy one ticket and get the second one half off before ticket prices go up $200 at midnight January 31st.

Once you claim your discount, you're just a few clicks away from joining more than 13,000 fellow SaaS CEOs, founders, revenue leaders, and investors at the 10th(!) SaaStr Annual 2024. It's three days of experiential learning and connecting with your favorite SaaS companies, like Drata, Zoom, DuploCloud, OpenAI, Deel, Monday.com, DevRev, Asana, 

Maast, Prescient Security, and many others.  

So what are you waiting for? Grab your discounted tickets before time runs out:

Free of course can real work, done right.:

• Slack
• Zoom
• Canva

All built massive businesses on the back of very Free editions, even if they later turned more enterprise. Very free, in fact. All of their Free editions are amazing.

But for most of us without a truly viral app, my #1 bit of advice is: don’t confuse Free with a marketing strategy.

My experience across leading 30+ seed investments, including 4 billion+ exits so far, on why startups fail:

• Not 200% committed to winning no matter what. Even the smartest founders aren’t always 200% committed. Sometimes, they’re more in a “I’ll give it a shot” mode. So far, I’ve always lost my money here.
• Good But Not Great CEO. It’s just too competitive out there for a nice but not great CEO to win.
• Refusal To Manage / Deal With The Burn Rate. Some founders just hide from burning too much cash. That might be OK for a few months, but beyond that, startups fall into a decay curve they don’t recover from.

There are other reasons startups something do “Good But Not Great” or just OK, but that don’t lead to failure IMHE:

• Great CEO, Merely Good CTO. I don’t see these producing big category winners, because they can’t keep up on the product side. But they often can still be a decent #2 or #3 in the space and product a good exit. Just not a huge one.
• Growing, But Never Getting Efficient Enough. This is a subtle point, but some startups grow pretty quickly but never quite get their unit economics under control. Some fail, yes. But more often in my experience, they just end up selling for an OK but Not Great price.
• Loss of Founder DNA. This can happen for a lot of reasons, but I haven’t had a truly great outcome where all the founder DNA moved on. A company run 100% by non-founders can struggle to really get ahead of change, even if they can manage the current environments pretty well.
• Can’t Recruit a Great VP Team / Only Able to Recruit Mediocre VPs. Some founders can do a lot on their own with a small team, but just never recruit great VPs. They often can get to $10m, $20m, $30m+ ARR somehow this way, but at least in SaaS, never scale past that.

In the latest installment of our What’s New series where SaaStr’s very own CEO and Founder, Jason Lemkin, sits down with the top CEOs and leaders in SaaS to discuss What’s New, what’s top of mind, and what every SaaS founder should be thinking about – Jason sits down with Matt Mullenweg, CEO of Automatic and Co-Founder of WordPress.

Automattic and WordPress and is the classic, old-school, OG open-source leaders, and fun fact, as SaaStr runs on WordPress, we simply wouldn’t be here without Matt and the 2,000 folks who work with him. 

SaaStr was created in 2012 to democratize learning and how to build B2B companies, and WordPress was started in 2003 to democratize publishing. Matt’s been in the game for 20 years, and throughout that time WordPress and Automattic, and even what it means to publish, have expanded and evolved. 

Right now, 42% of the market runs on WordPress. But when they started tracking it, it was .8%. This is a result of the work and not what they work toward. The key is serving customers’ needs, and that number naturally goes up. 

So with that, let’s dive into what’s new at WordPress.

Typically support consumes about perhaps 5%-7% of your revenue at scale (excluding customer success) in most SaaS models.

It could be more or less, but that’s a rough way to think about it. Another 5%-7% go to core infrastructure costs (AWS, Azure, Snowflake, etc).  And that leaves you at the 75%-85% gross margins traditional SaaS companies have.

So at $100m in ARR, you might be spending $5m-$7m on your support team. As you can see, that puts a lot of pressure on costs.

But spend a lot more in the early days for sure. Happy customers beget more happy customers. Make sure the phone is picked up by ring #3. Make sure every Intercom chat is answered in 60 seconds of less. Have instant support while you can. It’s your top marketing and customer retention investment.

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