Hi Kevin
One of my favorite topics!
- I’d say the main things you need to be watching are: MRR Growth, Customer Acquisition Costs and Churn.
MRR Growth, because at that stage, you need to be showing growth at speed if you want to raise more money. Remember that the ideal growth trajectory post $1m is T2:D3 (ie Triple, Triple, Double, Double, Double for each year after $1m). So you need to be coming into that first year post $1m quite hard. For us, it took us about 22 months to get to $1m, and then 6 months more to get to $2m. Sometimes it’s hard, but anything you can do to improve growth is good - well almost anything:
CAC - customer acquisition cost. One of our side projects (we were a minority shareholder) was dead before it even got going really. In spite getting to $3m+ in revenues, it was on the back of acquisition costs that were higher even than its Lifetime Value. So, no matter how fast your growth, if it costs more to acquire a customer than you will ever get back from them then ultimately that’s unsustainable. The rule of thumb is a CAC equal to or less than the Annual Contract Value, but in the early days you should expect a much lower CAC than that. Costs get higher as you get bigger and move upstream, but early on you should be able to win customers with much less spend, relying on early adopters, word of mouth and hustle!
Then Churn - the silent killer. Again, probably less of an issue very early on, but keep an eye on it as you get bigger. The Quick SaaS Ratio ($ new + expansion) - (contraction + churn) won’t be as important early on, but will start to be something to watch as you get bigger. It needs to be at least 4. This shows that you are efficient at growing your business. If you see your churn starting to grow, hop on it and try and work out what the issue is. Sadly, churn is a bit of a lagging indicator, but you can start to see if there is a link between churn and other behaviour that may flag warning signs in the future.
-
Organic inbound - same. We invested very heavily in content from Day 1. It was long-tail (ie about the problems we were solving) rather than about us and we committed to producing 4 bits of content every week. It took time to see the results, but today we still get a lot of leads from the content that we have been building over the last 4 years.
-
Churn. We were quite lucky - we have always had net negative revenue churn, ie people expand by more than they churn. This is partly because your early customers are more forgiving and partly because you are adding way more than your existing customer base is churning. I think one thing we did that has stood the test of time, was being very responsive to customers big and small. It’s one of the reasons why people say they chose us over others. And when you’re small you can afford to do that - you can even have personal outreach by one of the founders to demonstrate how much you care. Today we still have net negative revenue churn, but the % is smaller and churn is an ongoing concern for us. It never disappears. The only thing I would say is that when you get bigger customers, your churn reduces significantly.