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Kindle Notes & Highlights
by
Aaron Ross
Read between
November 24 - December 12, 2022
If you're selling something at $1,000 but can charge $10,000 for the same work, it's 10 times easier.
Concentrate on small deals initially and work up to the enterprise level—the most profitable part of SaaS—later.
If you have true enterprise customers, they're going to last around five to seven years. If you sell to various small businesses on a credit card, they're going to churn out at 3% to 4% per month. Which may not sound like a lot, but 4% monthly churn means losing about 48% of your customers in a year.
Assume the majority of your headcount at a $10 million ARR SaaS business is not building product, but helping to sell, market, and support it.
The Painful Truth : It's hard to build a big business out of small deals.
For example, at EchoSign, pure freemium (i.e., no human involvement, where people started with the free version, then auto-bought some kind of upgrade) never exceeded 40% of revenue. As they passed the first $10 million in ARR, freemium sales began declining and never exceeded a third of revenue. Another great example is Box. Box to get past $100 million in revenue “tilted” from a mostly freemium product to an enterprise focus aimed at landing six- and seven-figure annual subscription deals. Today freemium is a minority of their revenue.
Freemium alone has a ceiling. But it builds your brand.
Pure, automated freemium—where you put up a website and the money automatically rolls in—is a wonderful vision, when it works. However, it's much harder to achieve than you realize, if you haven't done it yet.
SMALL DEALS GET YOU STARTED, BIG DEALS DRIVE GROWTH
Which is the fastest way to get to $5 million in revenue: selling a million orders at $5 each, or selling 100 at $50,000 each, or selling 10 at $500,000 each? You can make millions without needing millions of users.
They all started simple then went upmarket. Salesforce.com started by selling a handful of users at $50 a user. Within three years, they were selling deals of 1,000 users at $125 a user. Then a few year later, tens of thousands of users at $300 a user (list price). Salesforce.com put tremendous focus on selling (and delivering) deals with massive user counts, while finding ways to create higher end packages… which combined to create massive revenue acceleration.
When you're attempting to grow by major leaps, work on doubling your average sale size as much as you work on finding and closing twice as many deals. Or if you already have lead generation machine working smoothly, it's how you can quadruple growth—doubling deal sizes while doubling leads.
Work on doubling your average sale size as much as you work on finding and closing twice as many deals.
You can do it through a mix of targeted lead generation, changing pricing, designing higher-end packages, through premium products with enterprise features, carefully developed channel partners, or whatever. It doesn't happen overnight, but you can take concrete steps to get there.
Start with the question, “What conditions would have to exist to close deals that are 10 times larger than we are doing today?”
Many entrepreneurs, especially first-time founders, have expectations of what people will pay that are far too low. It's also easy for experienced executives to fall into a rut with a division or team, through either inertia or habits. Push yourself past those limits, to come up with ways to double or triple your revenue per customer by also asking: What would it take to grow our revenue 10×? What would it take to grow our biggest sales size 10×? How can we find and work with customers to whom our solution would be worth 10 times the price we're currently charging?
How can you think bigger? For example: SaaS products: What kinds of management features would you need to sell packages of 50, 500, or 5,000 seats? Freemium or cheap products: What do companies need so badly that they're willing to pay for a five-, six-, or seven-figure annual subscription deal? Or what kinds of channel and distribution partners would have a big audience hungry for your stuff? Smartphone apps: Is there a way to sell bulk packages to businesses? Or resell the technology or your unique expertise to other business? Books, online programs, or workshops: Are there partners who can
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Don't count on making a big business out of small deals or customers.
As you get off the ground, one of the best ways to double your other growth, without working more hours, is by closing bigger deals. With bigger deals, you will (a) make a lot more money, (b) exert less effort, and (c) help customers become more successful. If you're selling to someone who's close to your Ideal Customer Profile, closing a $100,000 deal shouldn't be much more work than closing a $10,000 deal, and may not even take longer. So if it takes two to three times the time and effort—but if you get 10 times the revenue and your customers get 10 times the value, it's worth it!
Don't be afraid of raising your prices when selling to bigger companies with bigger needs. Bigger deals can take longer to close, but they're worth the wait. The size of the deal doesn't determine the sales cycle length; that's affected by things like: Clarity in Nailing a Niche, especially becoming a need, not a nice-to-have, for executives The number of people involved in a buying decision (bigger companies means more people are involved, the decisions are more complex, and more time is required) Selling on value, not price, and with unique advantages customers can't get elsewhere Your
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We want to be clear: We're not telling you to give up small deals. Use small deals to get started. Appreciate those customers and love them—but don't limit yourself to small deals by thinking small. Before the Internet, businesses ended up focusing on either lots of small, transactional customers, or on big customers and big deals. Now, companies can blend them cooperatively, building a customer base of small, medium, and large customers. The trick is in focusing on one as your primary business, while keeping the other(s) as complementary.
There's a difference between being patient and being passive.
Because what he had with his SaaS company is something you may have with yours, too: an application that can be used by businesses of every size. And if you do, you'll want to decide if you're selling a tool—or a solution.
If you have multiple segments with 10% or more revenue, you need to service them all in some fashion. But one segment has to be number one.
Understand that you can make 3 to 20 times the revenue on a given enterprise customer with a solution sale versus a tool.
You'll need a lot more people and processes (and features and software development) to provide a true solution.
It's easier to get to $100 million in ARR and an IPO on the backs of enterprise customers who can pay $100,000-plus a shot.
Don't fear the solution. Don't fear the Professional Services team, or the solution architect, or the sales engineer. Deep down, many of us would prefer to sit at our desks or in front of our iPads and watch the customers roll in with no human interaction. If you can get 1,000,000 paying customers that way, that's probably the way to go. But whatever you do, don't do all the expensive work to provide a solution and then get stuck at a low tool price point; that's the kiss of death.
Ojo
Going Upmarket So you have a good thing going already? Maybe it's time to push yourself on investing in salespeople, on pricing, and going after bigger, more complex customers.
What works at the bottom of the market may not work as you tilt upmarket.
“Amateurs” (those not classically trained in sales) don't know how to close. They wait and hope for the close to happen magically on its own. Sometimes it does. But you'll see that once you have someone managing a prospect who knows how to close, then a lot more deals happen, and they close more quickly.
Putting true sales professionals on those leads is going to increase your revenue per lead by 300%—at least in the segment of your customer base where it makes sense to have sales professionals (e.g., $99–$299 MRR and higher).
The sales rep's job is to be a trusted guide, a consultant, helping prospects through an often-complex evaluation and purchasing process.
For lead generation, it helps to have some free, easy, or affordable ways for prospective customers to kick the tires and get to know you. This could be a free or low-cost product, a free trial, or free content.
For lead generation, it helps to have some free, easy, or affordable ways for prospective customers to kick the tires and get to know you.
If your product is 100% individual-focused, and you add just enough features to sell to a team, to tilt just slightly upmarket—you can grow your revenue, at least a segment of your revenue, by 20 to 30 times. Because deal sizes can go way up, and customers will stay with you much longer.
Now come up with a slight extension of that same product whereby some team or segment of an entire enterprise can use it together. Let's call it just five seats to start, instead of one (see Figure 17.1). Maybe you add management-level analytics. And then some sort of collaboration. I'm not sure what it will be for you, but let's call it the most basic features necessary so that a team or a group will buy, instead of an individual user. Often it's around extra reporting features, administration, security, or configuration controls.
What you'll find is epic on the churn side. As the deal gets just a smidge bigger, your churn will drop by 50–80%, toward 1–1.5% per month. As you add more seats, the churn will trend toward 0% and eventually become negative: your customers will add more seats than they cancel over time. Since SaaS compounds and is a long-term play, over three-plus years you'll be just so far ahead. That single-seat user that left after eight months might be gone forever. But that five-seat team edition sales customer is still there in Year 2 and Year 3, paying you, and maybe even adding seats.
So what's the point? If you are building a freemium or self-service product you don't immediately need to Go Enterprise. What we are suggesting is that you at least think about adding a layer: If the one-seat freemium thing is working for you, add a Team or a so-called Enterprise Edition, even if it's just for an enterprise of five.
Think about adding a layer: If the one-seat freemium thing is working for you, add a Team or Enterprise Edition.
PRICING IS ALWAYS A PAIN If you're struggling with nailing down your pricing, remember: Pricing is always frustrating and never perfect When in doubt, it's easier to start with higher pricing and then lower it, than to start low and raise it later
Maybe anyone can use what you've got, but who would find it especially valuable? Who needs it?
Complex pricing makes it harder for customers to buy and harder to keep track of what has been delivered.
Don't let the fear of losing a deal stop you from trying out new pricing ideas with prospects.
In many ways, the purpose of enterprise sales is to help customers get through their own internal buying processes. Even the best and most popular product can't make typical enterprise buyers change the way they do procurement.
The true purpose of salespeople is to create new value for customers.
Even though the enterprise sales process has many steps and stages, it ultimately has to answer three questions for the customer: why buy, why buy from you, and why buy now.
The best enterprise salespeople are coaches, ensuring that prospects receive what they need, resources are rallied within the company, stumbling blocks are uncovered and avoided, and surprises are eliminated.
Any expectations you have about how long it will take, or how hard it will be, are pretty much guaranteed to be wildly off. But it's worth it.
