Are consumption-based SaaS business models becoming more prevalent?

They are, and it’s worth thinking about. We actually sort of started there. The first big SaaS success wasn’t Salesforce, it was WebEx before that. Salesforce learned from WebEx, just like many of us learned from Salesforce. And WebEx started off with a consumption-based model. It made sense, because back then, “minutes” had a high variable cost. From 2003:
$0.45 a minute for video, plus $43.20 just for the audio portion of a one-hour meeting with 6 participants! Woah! It took falling network prices (and competitive pressures) for WebEx to gain the confidence to move to semi-consumption and then flat-rate pricing. Salesforce took that and ran with it, and trained an entire generation of buyers to pay “per seat”. This created some degree of certainty in pricing over consumption-based models — with a trade-off that the vendor (Salesforce) actually came out ahead. Salesforce got everyone trained to buy Continue reading "Are consumption-based SaaS business models becoming more prevalent?"

When should a CEO tell startup employees that the company is going under?

I recently asked this of an interviewee that just went through the shut-down of a top-VC backed start-up. It was a good reminder of two things:
  • everybody knows; and
  • hope springs eternal.
This isn’t to say everyone knows a start-up is literally going under. But they know when things are … off. They’ll know if you might be getting acquired (odd meetings, lots of folks in button-down shirts coming into the office that no one knows who they are, etc.). And they’ll know if you are going through a very high level of financial stress. Look, being too pessimistic rarely helps in start-ups. But the troops can handle it. If there’s a 25%+ chance you are going to pull through, maybe hold back just a bit. Sometimes we are too pessimistic as founders. I think at 25%+ odds — you may well find a way. Instead, just tell Continue reading "When should a CEO tell startup employees that the company is going under?"

How do you stay creative as an entrepreneur?

For me at least, it’s an odd blend of stress + free time. Personally, I need periods of both over each year to be sufficiently creative. In business I think of two types of creativity — tactical and strategic. “Tactical Creativity” is coming up with a great new feature, a new edition, a new price point, a new integration, etc. A great new evolution or enhancement. Personally, I’ve been the most “creative” here in times of stress. When things are easier, and/or with less time pressure, I am not sure you think as much about key incremental improvements. But the stress to close a bigger customer, to beat a competitor, to meet an annual plan … to me seems to bring out Tactical Creativity. “Strategic Creativity” to me is coming up with brand new ways to do things, or brand new ways to evolve what you are already doing. For Continue reading "How do you stay creative as an entrepreneur?"

Will salesmen always exist?

There are probably at least 2 core true-isms with customer buying:
  • For a product much more than $299 a month, most prospects want to talk to someone before they buy.
  • For almost any product that requires real business process change, most prospects will want to talk to someone before they buy. And
  • The best people for prospects to talk to are specialists that just handle those conversations and nothing else. We call them “salespeople”.
So for those products: Yes. Done right, salespeople are highly specialized professionals that handle one little piece of the journey — managing and serving the needs of a prospect until it becomes a paying customer. And making sure they take that jump. And yes, there is a bit of friction between those 2 parts of the job.
Freemium and self-service are great and you and I love to buy products that way. The other day,
Continue reading "Will salesmen always exist?"

Is the first sale the hardest sale to make?

Not usually. The 7th or 10th or so sale is usually the hardest to make. Why? The first few tend to be from highly unscaleable techniques. An ex-boss or friend that runs a company. A crazy cold call that would never work again. A random meeting or happenstance. And if you are crazy driven enough to be a founder, you often somehow find a pilot “customer” or two from your own extended ecosystem. Put differently, in my SaaS ecosystem at least, I’ve met with tons of founders with 2 or 3 customers (and especially, 2 or 3 “beta” customers or unpaid trials) … that then end up really struggling to get to 10. But I’ve almost never met anyone that got to 10 unaffiliated, paying customers that dropped to 0. Once you get to 10, you’ve generally found some way to get more customers. This is the hardest part to Continue reading "Is the first sale the hardest sale to make?"

What is the most influential piece of feedback that you have received from a boss or coworker?

My list:
  1. “You need to start managing people.” My second boss was generous enough to give me a small team to manage a few months into my job. I didn’t ask for it, and it wasn’t a group I wanted to manage. So at first I turned it down. He said, “that’s fine, but it’s time you learn to start managing people.” I woke up the next morning and realized he was right, and asked if I could still have the opportunity. By the end of the week, I had a team of 3 to manage.
  2. “You need to get out of the office and go visit more customers.” This is a constant SaaStr theme, and I needed to hear it, too. When I was struggling, I went to meet with another of my old bosses, who was one of the salespeople I knew. He said he Continue reading "What is the most influential piece of feedback that you have received from a boss or coworker?"

What is the most influential piece of feedback that you have received from a boss or coworker?

My list:
  1. “You need to start managing people.” My second boss was generous enough to give me a small team to manage a few months into my job. I didn’t ask for it, and it wasn’t a group I wanted to manage. So at first I turned it down. He said, “that’s fine, but it’s time you learn to start managing people.” I woke up the next morning and realized he was right, and asked if I could still have the opportunity. By the end of the week, I had a team of 3 to manage.
  2. “You need to get out of the office and go visit more customers.” This is a constant SaaStr theme, and I needed to hear it, too. When I was struggling, I went to meet with another of my old bosses, who was one of the salespeople I knew. He said he Continue reading "What is the most influential piece of feedback that you have received from a boss or coworker?"

What is Jason M. Lemkin’s daily routine?

It’s not very interesting. First, I now try to avoid “screens” from 10pm to 7am. This has improved my quality of life. I try to spend <= 60 minutes a day on writing, content, blog, social, calls to Europe, and similar activities before everyone else is working. I now try to do this from about 7:45–8:45. As time has gone on, my creative time has evolved, or perhaps, returned to when it once was. Creative Time after I left Adobe/EchoSign used to be in afternoons, but now things are just too busy. So now my creative time is before everyone else is humming. Looking back, at EchoSign, it was the same. I tried to get to work an hour before everyone else for Creative Time. I try to go out to lunch with whomever on the team or outside of it wants to have lunch with me 🙂 I used Continue reading "What is Jason M. Lemkin’s daily routine?"

If a SaaS prospect signs up during a free trial, should they be charged from the day they sign up, or from the day the trial would have ended?

Well, generally speaking, a “free trial” probably should be free … But at a higher level, let the small stuff go.
  • If you want to keep a customer for 10+ years, and the first month is free and that makes the experience better … just do it. It won’t matter.
  • If the customer wants to downgrade or drop a few seats, just let them. Even if that makes the renewal or the next month smaller. Just let them. And make it easy on them. Don’t make them ask repeatedly, or hide a link, or make a smaller renewal challenging.
Don’t worry about small stuff in each individual customer. Worry about making all your customers as happy as possible. Let them buy the way them want to buy, and try they way they want to try. As least as much as you can. That’s what will matter in the long run. Continue reading "If a SaaS prospect signs up during a free trial, should they be charged from the day they sign up, or from the day the trial would have ended?"

Should I include annual “premium support” into ARR as a SaaS company, or is it a part of service revenues?

It is revenue, it’s real GAAP revenue, but it’s not software revenue. So break your revenue out into two components: software (ARR) + services. Then, sum them up into revenue. You generally shouldn’t include support and services in ARR. It’s not recurring and it’s not software revenue. However, if services and other non-software revenues are < 10% of your total revenue (i.e., relatively immaterial), many start-ups just roll it all up into ARR anyway. Probably not the end of the world for a non-GAAP metric. At a minimum, don’t roll it all up if services, support, and “other” are > 10% of your revenue. Finally, language matters, and talk to your finance professionals. Sometimes, “premium support” — although not one-off services — can be deemed software revenue if it’s part of the delivery of the service. View original question on quora The post Should I include annual “premium Continue reading "Should I include annual “premium support” into ARR as a SaaS company, or is it a part of service revenues?"