If you’ve every had the thought: “I know, I’ll make a SaaS product” then Gail Goodman’s 2012 talk on the Long Slow Saas Ramp of Death is for you.
Transcript and more here:
Here are my notes and summary of that presentation. Any errors are likely induced by me. I don’t know Gail, nor am I a customer of her company, but I loved this presentation.
The long, slow SaaS ramp of death is that it just takes a long time to get to minimum critical mass.
The basic premise is that you may never see hockey stick user growth, but with SaaS it might not matter. If your customers are saying you have something and you have some growth, then over time (possibly a long and challenging time), the math of SaaS usually works out in your favor.
Another initial point she made was to think of SaaS as more like a flywheel than hockey stick.
Don’t fall for the mirages. There are lots of different components that seem like they will boost you to some next level (partners, new feature, free, viral, seo, etc). Rather, your mindset should be more like SW development in that there is no silver bullet. No one event or feature will induce hockey stick growth, instead you will end up working on a thousand cumulative optimizations.
(08:40) Instead, you have to work the funnel by
… making sure that when someone tries or buys your product, they have a ‘wow’ experience, they get quick to an understanding and an outcome that blows them away.
(12:22) “I would argue that most of those little things will happen if you continue to view your business from your customer or user inward rather than from the metrics you want to change outward.”
Try to optimize the customer outcomes first. Spending significant time optimizing your landing page before nailing a feature set that delivers value is an inversion of the process.
(12:40) “The key to changing those internal metrics (funnel), is by starting with the view from your customer looking at your business and your experience. Not by looking at your metrics & trying to change your customer’s behavior.”
Sone solutions were decidedly old fashioned. Radio and free seminars worked for Constant Contact because small business owners often have radios on during the work day.
At the top of the funnel (landing pages, ad buys, etc.): Test, Scale, Tune & repeat.
Try Understand why customers weren’t flocking to you.
(22:35) “Quick to Wow.”
It’s all about optimizing the quick to wow.
Turns out the number one way to get them to stay, is to get them successful early.
Human Nature: When faced with a learning curve, humans tend to learn just enough to get the job done, then stop learning. It is hard to get customers to look at new features.
(23:53) Middle & Bottom of the funnel: Measure, test repeat.
(25:00) Innovate everywhere. Not just on the tech side of the house.
(26:20) A simple formula for calculating LTV (Lifetime Value of a single customer). It’s one over your retention rate. In the case of Constant Contact, their average monthly retention is 2.2% a month. One over 2.2% is ~45 months.
As an aside, different industries and regions seem to have different acronyms for this concept. I’ve seen LTV, LCV, CLTV, CLV & LTCV.
Best blog post: David Skok: SaaS Metrics, A guide to measuring and improving what matters.
“Operating at cash level: Only eating what we were killing.”
All spare cash going into marketing spend because at that time, CAC (Customer Acquisition Cost) was ~300 and LTV as ~1650. we knew that we could turn down marketing and be instantly profitable. In other words the money generation machine was working at full capacity.
(30:50) Inflection point came at the time where the combination of understanding 1. 2. 3. all came together to the point where we were confident scaling the business:
If your customers are telling you you’ve got something and your metrics are continuously improving, stay on the long slow ramp of death. But if either of those aren’t true, it is probably time to parachute off.
“You shouldn’t have to build your own metrics anymore.”
And she save one other great nugget for the very end:
You don’t own the gas pedal on word of mouth. The best gas pedal is a great experience.