Patience, part 2

Wow. A recent post by Jerry Colonna really connected with me. The conclusion:

The hard part isn’t coming up with the plan. The hard part is bearing the stage of “No action” necessary so that the right amount of data can unfold. And then, when you know where you want to go, where you need to be, exactly how you’d like the change to manifest, the steps to getting there lay themselves out the way the Yellow Brick road revealed itself to Dorothy.

“No action” is a stage that I’m really uncomfortable with. I’m confident in my ability to get from point A to point B as long as I know what point B is. But sitting, waiting…that’s hard stuff.

The Argyle management team has been considering a very big question for the past several months. We all had gut reactions to the answer when the question was first posed, and we were relatively aligned. But I have to give a lot of credit to Eric for forcing us to sit in a “no action” period for quite some time. During this time, we had a chance, as a group, to look at the question from a variety of angles and deeply understand what we were doing before we charged right in.

As high-performing, type A personalities, we all wanted to make a decision and run with it. But sometimes big decisions require thought, reflection, and gathering more data. As important as it is for your team to be fast to market, it’s more important to make smart choices.

Be comfortable pausing.

How to Grow Your Reporting with your Business

I recently got together with a bunch of marketing folks in the Durham startup scene. One of them asked me “When does it make sense to put in the effort to formalize my customer acquisition reporting?” This blog post is a more fully-formed answer to that question.

One of the primary tensions that exists in all startups is effort allocation. What do I spend the limited hours in my day accomplishing? The life and death of many startups rides on the early employees’ ability to correctly answer this question. With regard to reporting: if you focus on reporting too early, you’re wasting your time over-building. And if you build reporting too late, you’re wasting your time trying to run your business inefficiently. The question is, when should you make the switch?

Here are some rough guidelines.

Before Product/Market Fit

$0-$2k MRR

Don’t spend a single second measuring or tuning your reporting. Things are changing too quickly for any results you gather to have any meaning or drive towards any beneficial action. If you have ten customers, you can’t show a meaningful churn rate, CAC, or cohort analysis. Don’t bother.

If you have sold any subscriptions, just make sure the integration with your subscription billing platform is working and periodically audit the merchant account deposits with your bank to make sure they add up.

Very Early Revenue Ramp

$2k-$15k MRR

Use exceedingly simple models. You’re starting to grow and want to make sure you have some concept of what’s driving that growth, but you don’t want to spend too much time building systems that might have to get torn up in a month.

Make sure you know roughly where your customers are coming from. Our initial buckets were: advertising tests, outbound sales, inbound marketing, and personal networks. Make sure you know enough to cut advertising tests that aren’t working and expand ones that are.

Early Revenue Ramp

$15k-$83k MRR

This is where things get hairy and you will really benefit from having some serious Excel skills. At this stage, you’re too early to rent or build a really good subscription management tool that will give you all of these reports in an automated fashion. Tools like this will cost a significant percentage of your revenue and can’t really be justified. However, you’ve gone beyond the stage where it’s really appropriate to do seat-of-your-pants reporting. If you have investors, if you’re spending significant sums of money in marketing, and if you want to be able to project the future, you’re going to need some real numbers.

What numbers?

• New, Renewing, and Accruing MRR: Read the BVP white paper if you’re not familiar with these metrics. They’re the core of your business as a SaaS company.
• Customer and Revenue Churn: Lost customers as a percentage of total customers, and lost revenue as a percentage of total revenue.
• Customer Acquisition Cost: How much does it cost to acquire a customer? For paid advertising channels, do a marginal analysis here that just takes into account the channel advertising spend and customers acquired from that channel. Also do an aggregate analysis that includes all sales and marketing costs (including salaries) divided by total customers.
• Average revenue per user (or customer)

What numbers not to focus on:

• Customer LTV: You have no idea what your long-term churn rates will be so you just can’t know this yet. Just take ARPU and multiply by 12 if you want an average yearly value of a customer—compare that to your CAC to guide your marketing decisions.
• Cohort analyses: You haven’t been around long enough and don’t have enough customers for a cohort analysis to make much sense.
• Delta MRR (upsell and downgrade): This is just too painful to measure in spreadsheets. If upsell is a major part of your business and you’re a true spreadsheet hacker, then the very best of luck to you sir. Otherwise, save this for later.

A note on accrual: At this stage, you should already be using looking at your reporting with accruals. Cash is too spikey if you have differing deal sizes and contract terms. One big yearly account can completely change your conclusions if you use cash reporting. It takes a little work to set this up at this scale, but it’s worth it.

Knee of the Curve

$83k-$250k MRR

At this point you have enough maturity and enough data that you should be able to put numbers behind all of your typical SaaS metrics. The more important question at this stage is what systems you’re using to produce these numbers.

My recommendation is that during this stage you migrate away from spreadsheet business analytics and move towards revenue cycle analysis reporting in the systems that you use.

• Most importantly are your financial metrics. At this stage you need to move away from Chargify or Recurly and head on over to Zuora or Aria. The former are easy to integrate with and cheap, the latter provide you all of the reporting you need out of the box, with no spreadsheets required. Say hello to efficiency, accuracy, and scale.
• Customer acquisition reporting will come from either your marketing automation tool (which you definitely need) or your CRM tool. The specific ways you can set this up are myriad, and I plan on doing a full post on this topic in the near future.

What you still shouldn’t be doing, at this stage, is using different accountability measures for different marketing programs. All of your marketing programs need to be attributed in a single system using a single methodology. If you try to use one tool to track in-person marketing and three separate tools to monitor your advertising spend, you’re not scaling efficiently. That’s still too effort intensive at this stage.

Beyond

$250k+

You’re the best judge of this. There is no right answer at this stage. Fortunately, if you’ve made it here, you’re more than smart enough to figure out the answers.

Broadly Speaking

My general advice to folks trying to systemetize their SaaS metrics is to build earlier than they would think is necessary. Having done this now at two rapidly growing companies, I can tell you that building too early is much preferable to building too late. Argyle closes its books every month with about 8 hours of my time, and we produce basically every number that we could want. I spent several weeks developing our models back in early 2011 and since then they have been on autopilot. Do this. Invest the time early before things really start to pick up and when crunch time hits you’ll be able to spend your time on revenue-generating activities rather than back-office details.

Dear Steve,

Thanks for everything.

Sincerely,

Tristan

Patience

Patience is not one of my virtues. Personally and professionally, I get very edgy when the lifecycle of an idea from conception to construction is too long. I work in software because I can’t handle the seemingly neverending product cycles of physical goods. When I worked at GE for a summer and when I realized that it took a two-year R&D project just to add 8% on to the the length of a wind turbine blade, I resolved to never work in a company that produced physical products again. Two years is a lifetime.

I now find myself working in what is really the very early stages of an industry. Things are moving very rapidly from both a competitive and a product landscape. But the things that the industry is doing right now are really baby steps towards the end goals of true social marketing.

The end state is pretty clear: 

• Cookies will increasingly be associated with CRM records (already happening).
• URL shorteners and on-site analytics will converge. Marketers will be able to merge on-site clickstream data with off-site touchpoints.
• Multi-touch conversion pathways will be standard. NoSQL and map-reduce back-ends will allow analytics users to slice audiences in ways never before imaginable. Tracking Facebook Ad > Like > Interactions > Conversion as a conversion pathway will be common. And it will all happen within one tool.
• Word-of-mouth purchase influence will be algorithmically assigned to individual social posts, and aggregated to social properties.

I want to go there now, but there’s so much to build in the meantime.

Patience.

Great Designers are Worth Their Weight in Gold

I can’t tell you how many times I’ve had this conversation:

Our designer, Josh, has made every aspect of Argyle look good ever since he started last year. Site, app, marketing collateral—everything that is associated with the Argyle Social brand sparkles. This is somewhat uncommon in the b2b space: conventional wisdom within b2b SaaS is that product and sales come before design and marketing. And yet Josh was the second salaried employee at Argyle.

I think that’s one of the best decisions that Eric and Adam have made. Our interface, our website, and our marketing stand out visually in our crowded market and have become a major competitive advantage for us. Business users care just as much about usability as consumers do, because with usability comes efficiency and results.

In case you’re curious, the whitepaper Thomas was referring to can be found here. Make sure to admire the question mark.