Lessons Learned from 3000 SaaS Companies - Partrick | SaaS Conferences - Dublin | SaaStock 2016

how's everyone doing stand myself and I think a panel is standing between you in lunch so I'm anticipating a lot of angry faces in the next half hour here um but um yep I'm Patrick Campbell I'm the co-founder and CEO of a company called price intelligently and today what we're going to talk about um we're going to kind of unravel in the next 30 minutes is a pretty big kind of finding that myself and our team um discovered and sifting through a just a ton of data um and it's actually changed since I submitted the talk title to Alex um we're actually now looking at over 3,000 companies at this point um and that kind of shift that we're seeing in the market um really comes down to this concept that we live in a world where acquisition as we know it is debt and and the reason that acquisition is really kind of diminishing if not really kind of dying out as the main source of growth is because we live in a very very different product era um and what I mean by that is if you look at the history of SAS um in the entire world you know over the course of the past 20 to 30 years um and there are some SAS companies that were started 30 years ago surprisingly um but very very early on we lived in this world where it was very single feature sass so this was was really really early where Perpetual licenses were being selled with on premise software and all of a sudden it was like I can solve that one problem with building some sort of web app essentially with the really really early companies that were basically giving away what is now something like AWS now over time in this kind of product era what we found was all of a sudden customers started asking for more their problem was a little bit bigger than that single feature could solve and that laid way to multi-feature s and then over time we kind of get into the era of SAS that we know and love which started seeing things like automation now all of a sudden it was I want to put all my data in one place I want my tools to talk to one another I want them to do a lot of the work for me and then finally the last big era that we saw was really around consolidation where you see companies where it's no longer I can have one product that does something really really well but all of a sudden now we started to see a lot of multi product companies start to spurt up and the era that we're heading into and that we found in the data and we're going to talk about through the data today is really this world in software where it's all about workflow and doing it for me and we've seen that time and time again with the different Cycles throughout different verticals just think about sales for example the CRM world how far crms have come and now the new world of sales enablement which is very very focused on workflow and no longer showing my boss that I'm doing work but instead just getting the work done and what that's done fundamentally in this world of SAS is really it's now very very pinpointed in terms of customer value for growth rather than just on acquisition so that's what we're going to unpack today and to kind of give you some context and why I have any relevance to talk about this um as I mentioned we started a company called price intelligently about four years ago um we have two different Suites of software the first Suite of software is purely focused on pricing so we help companies like atlassian Autodesk um and all the way down to earlier stage companies basically get their pricing right through Market data then we also have a product called profit well which is a free financial metrics for subscription businesses so plugs into your Billing System stripe Zora brain tree whatever you're using and basically gives you your Mr cohorts all that kind of fun stuff and because it's free there's a big reason why we did that which I won't get too far into the talk today but basically it's around um you know customer value and what we're going to talk about um but what's fascinating about this is that over the past few years we've now seen inside essentially more SAS companies than anyone else out there we have about 15% of the market using one or both of our products and what that's given us is some really really good insight and as is the case with most things that we talk about if you've read any of our blog posts I'd rather let the data speak for itself rather than just me having any form of ethos so let's jump into the data and what we're going to do is we're really going to unpack this problem first then we're going to get into the cause of that problem that we've seen through the data and then finally talk a little bit about Solutions and unfortunately we can't get into all the Solutions in the next 30 minutes so it's one of those things where unfortunately like hopefully we're going to all feel a little bad and then all of a sudden come out towards the end with some good Solutions and some good next steps um but I promise you we're not speaking from some Ivory Tower we're facing all of the same things that you guys are facing being a SAS business ourselves so let's kick it off with the data so if we look at a really really high level as we unpack this problem what we found is that the market is becoming very very saturated and unfortunately unit economics aren't what they used to be it used to be you could start a business 15 even 10 years ago and focus on either single feature SAS or multi-featured SAS and all of a sudden you were maybe the bell of the ball as they say you were the only company out there maybe you had one or two other competitors and basically customers didn't have another option out there nor let alone a better option and so what we found though is that our world is becoming more competitive and it's making switching costs so much easier just think again about the sales Market how many crms are out there how many different sales enablement products are out there and what's really fascinating about this is that we looked at about five years worth of data here or companies that have been around for five years and we actually discovered that while early on they didn't have that many competitors over the past couple of years their competitors have gone from single digits all of a sudden to double digits and what's fascinating about this is this might be a product of success right if there's a space where all of a sudden we're all in it all of a sudden more competitors are going to come but even talking to companies that have only been around for about a year what we're finding is that more and more of them are starting off with a plethora of competitors more than half have a entially over six and a good majority are in that double digit and this is because you know software is easier quote unquote to build right you know the rise of AWS the rise of different devops tools all of a sudden we can build and ship features in a much much more efficient manner but what's fascinating about this is that because software has become easier and easier to ship and we're seeing this change essentially in the cyclical Revolutions of SAS we're also finding that the relative value of features is diminishing and to put it in another way all software is essentially going to zero um could be zuro or Z do unfortunately they're pretty equal at this point um but it's one of those things where what we're finding in the data is that customers just aren't willing to pay much or as much as they were previously and what's interesting about this and we'll pause here just for a second because it's a little bit of a different graph to look at what we're seeing here is that four years ago we basically benchmarked different features that that existed so for core features we normalized different data we basically looked at comparing things like crazy egg marketing analytics to something like Dropbox file sync and share and then we looked at the normalized value of those features over time and essentially found that even for core features the value is going down and this is because there's a lot of different competitors out there software is easier to ship and different things that used to be very premium add-ons like single sign on different Integrations or supporter analytics are also becoming more and more free give you a good anecdote it used to be four years ago you could sell a sales force integration for essentially 400 bucks a month as an add-on now it's just kind of expected because everyone has their Salesforce integration if they're in a Salesforce type of world but what's interesting about this too is that while this is happening our world becoming more competitive the relative value of features going down costs are also going up of acquisition so if we look at CAC it's increasing over time so customer acquisition costs four years ago were much much cheaper than they are today in both a B2B and a b Toc capacity and this is intuitive right everyone has an ebook everyone's doing some sort of CPC ads everyone's doing some sort of growth hacking and what's fascinating about this is that this is all compounding on itself you have the competitive nature of software you have the relative value of features going down and you have costs going up and what's scary about this is that we're making things worse like we as a SAS Community are making things worse mainly because it was so easy for us the past decade and when I say easy I mean relatively right like building a business is never easy but relative to today it was much easier four five 10 years ago but our focus is what's hurting us because we are obsessed with acquisition and when I mean obsessed I do truly mean stalker level obsessed if we take a step back and really look at what we value as entrepreneurs what we're finding is that more and more of us are both writing and consuming so much content around acquisition and we looked at these blog posts mainly because it was a nice little kind of anthropological artifact that we could look at where if we're writing about acquisition and consuming acquisition that's really where our focus is and what was fascinating about this is that most articles out there about growth about building a company are so focused on acquisition and really aren't focused at all on retention or monetization and what's kind of fascinating about this as well is that the companies that we are building are so focused on acquisition what's really interesting is when you look at a really good subset of B2B companies it's actually worse than the blog posts you're looking at a ton of acquisition companies out there not not a lot of retention companies out there and then the saddest club and SAS focusing on monetization um it's us we get together every so often it's great no I'm just kidding now this could be a chicken or the egg problem right you know we have a lot of acquisition companies therefore we have a lot of acquisition content but our Focus as entrepreneurs when we talk to SAS Founders and Executives is all about getting more logos so we talked to about 1,600 SAS Founders and we found that if we forc them to make a decision between acquisition monetization and retention what did you want to focus on everyone was all about those more logos you had a little small group about keeping customers around longer but primarily people just wanted more logos and we thought that this was a little unfair mainly because we forced someone to make a decision so we gave people basically a hundred units of time or money and what we found is that the trend was the same more logos it's all we want and what's scary about this is that this problem that we're seeing although it's something that is definitely fixable it's something that has a very very drastic implication on our growth and our success and so this is some new data that we haven't seen before or we haven't released before but what we looked at is we first kind of looked at how this Focus was essentially hurting companies that were dying so this is very correlative data just to be super clear whenever you put graphs up and the end values are low I feel like you have to qualify but what's interesting about this is we looked at about 90 companies that died in the past few years and we categorized them into two different camps those were primarily focused on acquisition and what we mean by that is their acquisition numbers were always either getting better or compounding and then their numbers around arpu or churn were essentially staying flat meaning over the course of their trajectory arpu wasn't getting better turn wasn't getting better but acquisition was getting better and then the other group was the acquisition was getting better but so was their arpu so was their churn basically these folks who had what we call balanced growth and overwhelmingly the implication of all of this focus is a lot of these companies are dying and it's correlative so what we did is we then took this data back and we looked at a much much wider data set on what growth rates looked like amongst these two different groups over the past four years and what we found is that there's a Stark difference between these two groups those companies that are purely focused on acquisition are actually diminishing in growth they're still growing but they're diminishing in how much they're growing whereas the balance growth folks are essentially holding their own and are growing at a much much quicker pace and the implication here like to bring it all kind of back is that this Focus will kill your business and that's where what the data is suggesting mainly because we're all wrapped up and we do need to acquire customers I'm not saying acquisition isn't important but acquisition at all costs this mentality that we've had over the past few years is what is going to hurt us in the long run and what's a little sad about this is that the root cause ultimately is our fault in a way because we are not focus on our buyers enough and just as a little bit of a thought experiment and this has not yet bit me in the butt quite yet but how many of you in this room have some form of buyer personas in your business okay good group so keep your hands raised for a second of those who have buyer personas how many of you have them in a central document that anyone or most of the team can access okay we didn't lose too many people that's awesome of those with their hands still raised how many of you have your unit economics broken down by buyers LTV CAC all those kind of fun things okay we have like two people left and I have six more questions um so what we're trying to get across here is that at the end of the day if you're trying to take some data forward litmus tests on if we know our buyers a lot of us don't have buyer personas and when I talk about buyer personas I don't talk about cute avatars with like fun names like table Stakes Tony and startup Susie I'm talking about actual Quantified buyer persona where you've gone to the market you've collected data and ultimately what you've done is you've started to know who your target is and what your entire funnel is supposed to be focused on now to give you a little bit of respit most of us don't have buyer personas and it's not to say that we don't know our buyers obviously you're in a certain business for a reason and you're hopefully growing at a certain clip but most of us don't have a centralized repository for our buyers nor do we have Quantified buyer personas and the reason for this and this is where it gets a little bit sadder is that most of us aren't talking to customers in a customer development capacity so we looked at this list of about I believe it's 15,600 companies here and we asked them how many customer development conversations are you having per month and most are having less than 10 and there's some Fortune 2000 companies in that less than 10 bucket that's pretty scary now what's interesting is a lot of people bring up well I don't talk to my buyers but I send surveys I send customer development surveys nope most folks aren't sending that many surveys either less than zero or zero essentially per month which means less than one per quarter and what's fascinating about this and like the overwhelming response I get to this is oh well we don't talk to our customers we don't send surveys but by golly we do a lot of experiments we do a lot of AB testing nope we're not really testing that much and this includes marketing experiments so a lot of us are retweeting and clicking on a lot of articles about customer development but not a lot of us are actually doing it and we don't realize that that there's that power in that balanced growth and there's that power in understanding your particular customers and so what's interesting about this as well is that the balanc growth this whole concept of making sure that you're focusing not just on acquisition it's supported by the data as well well so we built out a model based on all the SAS data that we're sitting on and we basically looked at if we improve each of these three different levers by the relative same amount meaning if we improve acquisition your lead velocity or your conversion rate by let's say 1% versus if we improve your retention by 1% versus if we improve your arpu by 1% what's going to be the relative difference and what we found is if you improve your acquisition by about 1% in aggregate you're going to see about a 3% boost in your bottom line and what's interesting is that if you improve your retention by the same relative amount you're going to see just under a 7% boost in your bottom line and then if you improve your monetization by about 1% you're going to see just under a 133% boost in your bottom line and the important thing here isn't the actual numbers it's the fact that if you improve your retention or your monetization you're going to have a 2 to 4X impact than if if you improve your acquisition but what's scary again is this is what we care about and that's what works what we care about what works I'll save you I normally do that like four times um but I'll say I'll save you from going too deep down that rabbit hole okay now this should be really scary and I know I'm like trying to scare you I'm a big scary dude and that kind of fun stuff but what's interesting about this is that the reason that this should be so scary within your business isn't just because of the numbers but philosophically when you're building your business everything that you do from your sales and your marketing all the way to your finance and operations is 100% focus on either driving someone to a purchasing decision or justifying the price or the product that you've put out there your price your monetization is quite literally the exchange rate on the value that you're creating and if you don't understand that buyer there's no way you're going to know what to put on that pricing page I'd argue you're not going to know what to build and I'd even argue further that the only acquisition that you're going to focus on is guess and check which isn't the best way to grow even if you're being acquisition focused so now that I've hopefully scared you a little bit um how do we fix this um and I don't have enough time to go go through all of the things that we found in terms of fixing um you can come chat with us throughout the day um and we're here tomorrow if you guys want to talk even further but what's interesting about this is fixing this isn't necessarily that hard and it's not something where I have some rocket science formula that we just cooked up in a lab somewhere because it really is going back to the fundamentals and understanding your numbers in the first place putting together some sort of Quantified buyer Persona and then ultimately making sure that you're implementing a customer development process and the reason this is so important is that these fundamentals are a lot of things that we get away from it's one of those things where we get caught up in raising money we get caught up in making sure our customers are happy we get caught up in doing a plethora of different things again startups are relatively heart in terms of actually getting things and willing them into existence but the thing is is that the fundamentals are there for a reason and they're there because that's what's going to help us actually grow into the long term so in terms of knowing your numbers it's extremely important because we see so many companies at the midstage late stage especially these folks who have grown strictly through acquisition just not understand where the money is actually coming from and ultimately not understand where the money is leaving their business so make sure that you have some sort of solution you know we offer a solution it's not necessarily something where I'm trying to sell here just make sure you have some sort of Excel spreadsheet make sure you're using some solution out there make sure you're building something doesn't matter what you're doing just make sure you understand your numbers the original reason we actually built profit well is because we were helping a company that was about to IPO um with their pricing and we actually found that their CFO was calculating Mr completely incorrectly um and their CFO had taken two other companies public and it was just an amazing time where we discovered holy cow people don't know their numbers and if they knew where their Mr was it was something that fortunately they fixed but they could have gotten even better valuations as they were going through their later stage rounds and Inter their ipu that's not the only reason to know your numbers but if you don't know where your money is leaking out ultimately you're not going to know how to actually fix your business the bigger thing to do here though is really quantify their buyer your buyer personas and again what I'm talking about in terms of buyer personas is really getting everything down on paper and an abbreviated way to do this or to at least explain is that the first thing that you should do literally tomorrow is just write down who you think your buyers are if you don't have these buyer personas and make sure that you have everything you know about those buyers in one place because essentially that will become the fulc room through which you can understand who you're targeting and how you're targeting those individuals and some more Quantified ways to do this is really to go to the customer and ask them about where the value is and you're going to do that in a really really targeted manner you're not just going to go up and you know haphazardly say like what do you value and what's your willingness to pay there are a couple of models and I'll share this um afterwards with you know everyone in terms of how you can do this more practically but the two types of data that you want to collect one is what's called relative preference data and this is basically having people Force rank which features are more important and least important and what's really cool about this is when you start to break down this data on any demographic information all of a sudden you start to see where those differences in buyer personas are and then the second type of data that's absolutely crucial is the price sensitivity analysis and while this graph looks a little bit crazy like oh that looks a little bit intimidating it's actually really really simple to get this type of output from customers and truly understand price elasticity um we've open sourced all of our models um in all of our Frameworks so it's one of those things where you can do this absolutely on your own you don't need to buy any software be a survey tool if you don't have one already but it's one of those things where it's absolutely crucial to have this data and if there's anything you remember maybe not even what data you're going to collect it's for the love of God talk to your customers this is the number one thread we see in terms of differences um by between companies that are failing and companies that are succeeding it's really around understanding those customers and the last piece here is really around implementing a customer development process this isn't something where you can just kind of oneandone everything you have to consistently focus on these particular customers because your Market's going to change as we already saw in the data your customer is definitely going to change whether it's the same customer evolving or it's different customers coming into the fold but you have to make sure that you have some sort of process and the typical process that we see work um is basically giving someone the 20% of their role is focused on customer research or pricing in this particular case everyone might meet as a particular group early in the quarter decide what they're going to test decide what they're going to talk about that person goes off and collects some data comes back in week four or five basically with the data a decision is made and depending on the gravity of that decision you either just put together a communication plan and ship it or you focus on an impact analysis or customer advisory panel but making sure that you have some sort of process and even if it's just really easy questions for the first couple of quarters make sure that you get the DNA of your company changed to being customer focused and not just kind of a shotgun approach of acquisition and in terms of who should be involved both with pricing and I would argue customer development as well is really you want a different organizational representation um so typically what we recommend is having someone from each part of the major parts of your business product marketing sales and finance and you typically will also have even in an earlier Stage Company it might just be the couple of Founders but the big thing here is making sure that all of these people are in one room because everyone has an opinion and with those opinions come a lot of different indecision and a lot of politicking so you also want to make sure that there's a main decision maker who ultimately has the authority to make a decision by a specific deadline so the process doesn't keep continuing and people get gunshy31 that we take advantage of the fact that we're there one thing that's really fascinating about the European SAS ecosystem is that because it's a little bit behind where the US ecosystem is you essentially don't have to make the really bad mistakes a lot of these us companies have done um by getting lazy essentially in the past couple of years so it's a huge opportunity for you to make sure that you're not left behind by essentially brute forcing your growth and one of the big things that we're focused on is really around the education and kind of releasing this data to make sure that everyone can get that same level um footing to make sure that their businesses can succeed and so we'll share a bunch of resources check out our blog make sure you kind of check things out in terms of this data in the context of your business and then even today what we're going to do is we're going to kind of help spur a little bit of this data further um and make sure that we can kind of really make the Pay It Forward movement that's already in the nice European SAS ecosystem continue but we're going to host some workshops here both during lunch as well as later in the day um at the afternoon break basically one focus on actually going deeper on how you can collect that relative preference data as well as the price sensitivity data and then later in the day exposing just the world's largest SAS data set essentially on things like churn annual subscriptions Etc the big thing here though is that it's important to take action so if you're ever at a point where you're not taking action or you have a question question and you can't find the information in our blog feel free to reach out to me I'm more than happy to help push you in the right direction and make sure that you're moving your company forward and you're growing in the right direction thanks

Channel: SaaStock

Views: 145,099

Keywords: Saas, SaaStock, Pricing, Software as a Service, Cloud, B2B, Enterprise, saas tools, saas platform, saas software, saas solution, crm saas, saas erp, saas business model, saas development tools, saas companies, lesson learned from saas companies

Id: BT9hUusNKQ8

Length: 27min 45sec (1665 seconds)

Published: Thu Dec 07 2017