This presentation uncovers a common misconception in fast growing SaaS businesses. Revenue reigns over everything. We talk about what really matters in building a sustainable SaaS company.

1. Numbers That Actually Matter

2. SaaStr 2017
Numbers That Actually Matter
Mamoon Hamid
Co-Founder + General Partner
02.08.17

3. The Dream

5. Not-So-Fictional SaaS Company
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

6. MRR Growth Accounting in Year 1
-$10,000
-$5,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
New Expansion Contraction Churned

7. 0.4
4.0
40.0
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Quick Ratio in Year 1

8. 0.5
5.0
50.0
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
New MRR + Expansion MRR
Churned MRR + Contraction MRR
Quick Ratio (QR) =
QR > 4 👍

9. -8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Gross Churn Net Churn
Churn – Year 1

10. Not-so-Fictional SaaS Co. – Year 1 Recap
• From almost zero to $1.1M in ARR
• Mostly organic MRR growth
• Quick Ratio hovering around 4
• Negative Churn
👍
👍
👍
👍
Series A Likelihood > 90%

11. Not-So-Fictional SaaS Company – Year 1 to 3
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

12. Not-So-Fictional SaaS Company – Year 1 to 3
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13

13. Not-So-Fictional SaaS Company – Year 1 to 3
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
🔥

14. Not-So-Fictional SaaS Company – Year 1 to 3
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
💰💰💰

15. MRR Growth Accounting – Year 1-3
-$60,000
-$40,000
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
New Expansion Contraction Churned

16. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
Quick Ratio in Year 1 to 3
🆘

17. -8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
Gross Churn Net Churn
Churn – Year 1 to 3

18. Not-so-Fictional SaaS Co. – Year 1 to 3 Recap
• From $1.1M to $9.4M
• But it took 20 sales people
• Expansion revenue offset by churned revenue
• Quick Ratio hovering around 2
• High Gross Churn & Positive Net Churn
• $1M/month of burn!
👍
Vanity Metrics Suggest Series B Likelihood > 90%
Underlying Metrics Suggest
👎
👎
👎
👎
🆘
👎 👎

20. How do we make sense of this?
• Product-market fit happens one customer at a time one
month at a time.
• Mostly ignored any product-market fit metrics
• Churn/Expansion/Contraction MRR is a lagging indicator
of product-market fit
• How could you have seen it? By focusing on a leading
indicator of the MRR decision...

22. Find your North Star
• MRR is the price that the customer pays, the North Star is the
value that they get.
• Your North Star measures the value you deliver!

23. North Star Metric: For example - DAU/MAU
What Company is this?
25%
30%
35%
40%
45%
50%
55%
60%
65%
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35

24. North Star Metric:
Facebook DAU/MAU = 55% (until 2012)
25%
30%
35%
40%
45%
50%
55%
60%
65%
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35

25. North Star Metric: DAU/MAU for Slack
25%
30%
35%
40%
45%
50%
55%
60%
65%
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
! !

26. North Star Metric – Wait a Second…
What’s the Orange Line?
25%
30%
35%
40%
45%
50%
55%
60%
65%
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
! !

27. North Star Metric – DAU/MAU
Front: The Shared Inbox App
25%
30%
35%
40%
45%
50%
55%
60%
65%
M1 M2 M3 M4 M5 M6 M7 M8 M9 M10M11M12M13M14M15M16M17M18M19M20M21M22M23M24M25M26M27M28M29M30M31M32M33M34M35
! !

28. What’s a good or bad North Star?
• Bad: Mostly measuring price paid as opposed to value
delivered
• MRR, paid seats
• Good: Measures value delivered in bulk
• MAU, DAU, messages sent
• Better: Unquestionably indicates Product Market fit has
been reached with the customer
• Number of users with L28>=16
• Messages sent w/in 30 days of signup

29. # of file actions
DAU/MAU
# of Customer Interactions
WAU/MAU
Pitches Viewed
DAU/MAU
Hires made
WAU/MAU
User App - Pairs
Apps signed onto per DAU
Apps monitored per user
MAUs
Other North Star Metrics

30. Value Delivered > Price Paid (MRR)
• Understand your MRR growth accounting
• Even though it’s likely a lagging indicator
• Focus on value delivered, not price paid or the
efficiency of the sales machine that got them to pay
• Find your North Star

31. So What Happened to Not-So-
Fictional SaaS Co. Over Time?

32. ARR – Over 6 Years
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16

33. ARR – Over 6 Years
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16

34. ARR – Over 6 Years
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16

35. MRR Growth Accounting – Over 6 Years
-$200,000
-$100,000
$0
$100,000
$200,000
$300,000
$400,000
New Expansion Contraction Churned

36. -7%
-5%
-3%
-1%
1%
3%
5%
7%
Date Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16
Gross Churn Net Churn
Churn – Over 6 Years

37. 0.4
4.0
40.0
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Quick Ratio– Over 6 Years

38. What does this mean?
• New Revenue barely makes up for your churned revenue
• Lack of new funding require sacrifices - product development
gets starved
• Less competitive product means it becomes harder to add new
customers and more churn
• Hard to retain talent
• And you enter a vicious cycle…