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So how do you measure the health of your business?

Business model & “LTV” – Life time value

  • Develop the business model that is “realistic” by clearly defining revenue sources, keeping the interest of customers and shareholders
  • Match pricing consistent with revenue streams/goals
  • Define what kind of promotions/discounts are needed and for how long
  • Consider how this leads into recurring revenue streams (for SaaS businesses) or repeat/new orders for traditional businesses
  • Develop a  “model” for customer LTV that is comprehensive (includes cumulative profits and not just simple revenues)
  • Show how LTV will evolve both short and long term

LTV defined – what is the “Value” of an acquired customer?

  • In early stages probably first year Profit could be computed as expected revenues minus expenses (to develop the business)
  • The second and third year it needs to be more realistic with real revenues plugged into the numerator
  • The CC (Cost of Capital) is an estimate of what it costs venture firms to invest in a business. The rate ranges from 35 to 75 based on the risk profile of the entrepreneur(s).
  • The “t” is the denominator indicates # of years as in year 1, 2,3 etc.

GTM (Go-to-market) & CoCA defined

  •  Develop a CoCA or some call it CAC (Cost of customer acquisition) model for your product/service. Its different than LTV.
  • The GTM should include model of lead generation and closing sales (choice of models like direct, indirect, use of outsourcers, online etc.)
  • Map the sales process (sales funnel) to the different people/parties involved from lead generation to closing to collection of money. This might vastly vary based on the type of business you develop.
  • State clearly assumptions you make as the leads move through the “sales funnel”. Its important to get “hunters” involved in the early stage of the business
  •  For the CoCA calculations use – marketing and sales costs, make reasonable assumptions of life of customer, retention rates, and closure rates. Exclude COGS and other fixed costs
  • Map how GTM will evolve over time – short, medium and long term
  • Explore and define where the use of word of mouth (WOM) falls (if any) in the overall GTM. Very important.

CoCA Calculations:

How do you figure if the business is “viable” via CoCA/LTV?


Courtesy: HubSpot

  • SaaS businesses LTV:CoCA ratio needs to be atleast 3:1 and time to CoCA recovery less than 12 months for it to be a viable business.
  • For SaaS businesses the CoCA needs to be anywhere between $1 – $3 per customer
  • As regards unit economics – customer churn should be between 3.5% to 1.5%

What do you track particularly for SaaS businesses?

  • For SaaS businesses – track LTV, CAC, LTV:CAC ratio, CAC recovery etc.
  • The are many more parameters to track. More later…..
  • Importantly track revenue churn vs. customer churn. Why are they different?

Imagine customers paying per month $10 for “basic” services and $100 for “bundled” services (upsell) & you had 5 of each in the early stages. If you lost 2 customers after couple of months, the customer churn would be 2. Imagine losing both customers in the basic category, then your churn is only $20. But if both are from the bundled category, your churn is $200. Big difference.

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Why WebEngage’s CEO @avlesh wishes #PNgrowth existed a few years ago?

WebEngage is probably the most important product startup from India’s business capital Mumbai – it builds customer engagement tools for SaaS businesses, is very popular and successful, and is used by thousands of businesses worldwide. Avlesh is one of the original hustlers of the Indian ecosystem, and he has built a world class product company in a matter of just four years.

When we talked to Avlesh about #PNgrowth, he was very excited, and stressed the importance of peer to peer learning in an ecosystem like ours which still hasn’t got as much attention as it should have. As he stresses, it would be very helpful for people if they don’t make mistakes in the first place, rather than learn after making a few. #PNgrowth would have helped him and WebEngage if such an initiative exited when they were starting out, he said.

Avlesh says that #PNgrowth can help entrepreneurs share different ideas of growth among them, and in doing so, share stories of how they scaled, the challenges they faced, and how they got to where they are.

#PNgrowth, in collaboration with Stanford’s Graduate School of Business and Duke’s Fuqua School of Business, iSPIRT’s #PNgrowth initiative aims to get the people who want to learn, and the people they need to ask in a room, and give them the perfect space to learn and grow.

You can learn more and apply for the program here.

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How I built a 1100+ users SaaS business as a Single Founder with Zero Marketing Budget

We formally launched inBoundio last week, I kept it in beta for eight months and kept working on it. It was slow going since I was the only one working on it — sometimes there was no progress for days. There were times when I got stuck and had to wait for people to reply on stackoverflow and answer my questions so I could finish the coding. Lot of things went wrong or didn’t work out. But some did, and in this post I want to share what I have learned. InBoundio is just starting. It is in no way a finished product nor a mature product, but I feel I should share my knowledge and experience right now. If I wait until I’m done, I may forget many of the smaller things. So here is the complete story. If you want the TL;DR version, scroll to the bottom where I have put everything in points.

How I Began

I stopped thinking too much, stopped planning, and just started doing the things I wanted to do and which I loved. I love technology, internet and marketing, so the product I built aligned with all this and I never had to look at where I was going. Failure looked acceptable as I knew I was going to enjoy the process and the final product.

I also didn’t set any deadlines for myself, and didn’t care about making money or setting targets. This took time out of the picture, which made me more comfortable and reduced any anxiety about getting it done. I wanted to be sure I made as few mistakes as possible, and I wanted to fully understand the market and user requirement. I continued to work alone, and it was only last month that I opened an office and hired two awesome developers (who in just five weeks have become a big part of my life).

How I funded inBoundio

Since inBoundio started as a one-man company, the expenses were negligible. I got one year of free hosting from RackSpace , which saved some money. I got the logo done for $3 and the dashboard was a $12 template. That was all the initial expense. I did use freelancers later on, as I wasn’t able to code some features. I paid them primarily from money earned by selling software packages and offering services.

Offering services also helped me understand client needs and wants. Because InBoundio is still in the early stage, I will keep on doing this for at least this year.

The experience with freelancers was hot and cold. Overall, I felt I wasted a lot of time. Many features never got shipped and I probably overpaid on a few, but I have learned my lesson.

Where We are right Now

inBoundio is still in its very early stage, and I am still working on finding the correct business mode. Still, I felt I should write this post now, as I want to share my experience and journey so far (posts like “How we sold our business for 20 million dollars” suck, right?)

Right now I have a small team working from our office, both of which give more structure to the business and make things move fast. For example, we are shipping new features on a daily basis, something which was not possible earlier. We just launched our chrome plugin and waiting for our WordPress plugin to get approved.

My Learning while bootstrapping as a single founder

I am splitting my learning into 2 section. Startup and Business/Life.

Startup Learning

  1. Use freelancers wherever you can, but be careful. I had mixed experience with freelancers. I met some nice people but I felt I also sometimes overpaid. Sometimes the freelancer just wasted time and did nothing. There is a huge cost involved in finding the right freelancer, plus there is a cost involved if something goes wrong. You can use freelancers for small tasks like testing—for example, I hired a freelancer from Vietnam on oDesk for $5/hour who did a great deal of testing and found lots of bugs. I also got the initial logo for $3 and bought the user dashboard template for $12.
  2. Do not hire people unless you need them. Do as much as you can by yourself and understand the technology stack of your product as well as marketing. Find your first paid user by yourself. Find new marketing channels by yourself. Do sales and support by yourself. Take all the phone calls yourself. Do the site support chat by yourself. All these tasks are part of building your business.
  3. SaaS businesses don’t grow fast and there is nothing great about them.  InBoundio is growing 15% month to month, which I think is on “faster” side of growth, although most of the SaaS businesses grow very slow. In fact I don’t even think SaaS are the best business model on the web for making money; the unit economics don’t work and most B2B products don’t spread by word of mouth. This means higher cost of marketing and no viral effect.
  4. The best feedback you will get is from your product users. The best feedback I have ever gotten is from inBoundio users. I have asked questions on various web marketing forums like warriorforum, as well as on Reddit and Hackernews, and received helpful replies. But the best real feedback I got was from current users. Aimee, my first paid user, has replied to many of my emails telling me what was broken.
  5. Building is easy, marketing is not. Marketing will always take more resources and time than building. Most founders put all their energy into building and then run out of steam and ideas. Products fail because they hit the wall of “How to Market and Sell” and the founders have no answer.
  6. Win-Win partnership works on Internet. The best businesses on Internet are the ones where your user also wins. If you are just focusing on yourself and how you can grow and make money, you will find yourself alone. This is not what the Internet is about.
  7. Bootstrapping is not easy, and doing it is as a single founder is even more difficult. Bootstrapping sounds great when you are able to pull it off; when it don’t work out, it can do lot of damage to your personal finances. Being a single founder also means you are taking the risk and will burn out fast. So far, though, things are looking fine for me. I will keep on doing what is working. If I feel I am burning out or need funds for additional growth, I will look at alternatives– though personally, I will always chose Freedom over Money.

Business and Life Learning

  1. Success and Failure are meaningless terms. Don’t waste your time judging yourself from others parameters.
  2. Don’t look at other startups and how they are doing. There are people who started before you, and others have already finished the race before you even started, so it is stupid to compare your startup with others.
  3. Don’t waste too much time thinking about company vision, disruption and denting the universe. You will end up doing what you want to do anyway, no matter what your earlier vision was.
  4. Use your own software. This is the best way to understand the limitations of your software. I only use inBoundio to market inBoundio. Yesterday I sent 1,000 emails and today I made some social media postings. When you use your own software, you can take better action on your user feedback and learn what you want and what you don’t.
  5. There is nothing wrong with doing services to fund your company product. I personally feel a business is a business, so it doesn’t matter if you are doing services or product. The end goal is to build a business.
  6. If you are not enjoying what you are doing, don’t do it. It is just not worth it.
  7. Only do things which make you happy. I don’t think I need to explain this.
  8. Don’t chase money; it will always be the byproduct of your success. If you do well in life, you will make money, anyway. If you start chasing money, you will cut corners, compromise on quality, and become mediocre and unhappy.
  9. How big you get, how big your business becomes, and how much money you make is NOT in your control. It doesn’t matter if you have an amazing team, a great product, big funding and work 18 hours a day, you can – and possibly will — still fail. Don’t waste your time on thinking things which may or may not happen. Live in the present, build your company in the present.
  10. Don’t plan too much. Most of the plans are just wishful thinking.
  11. Money will solve only one problem, money. The rest of the problems of building business have to solved by you only.

Republished from inBoundio blog

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Owning the Transaction – Why Marketplaces Need to Think Like SaaS Businesses

Marketplaces are difficult businesses to get off the ground. A marketplace without buyers cannot attract sellers and vice versa. In fact, the infamy of this proverbial chicken and egg problem detracts entrepreneurs from the challenges that a marketplace presents after it has successfully gained adoption and is successfully matching buyers with sellers. After all, marketplaces for products, like Ebay and Etsy seem to have it all working for them once they gain adoption.

Why the EBay of Remote Services Behaves Differently

Services marketplaces, however, present a unique challenge. Most services marketplaces cannot facilitate a transaction before the buyer and seller agree on the terms of the service. Also, actual exchange of money often follows the delivery of the service and the delivery of the service requires the buyer and seller to directly interact with each other. Connecting buyers and sellers directly before facilitating the transaction cut weakens a marketplace’s ability to capture value. The party that is charged is naturally motivated to abandon the platform and conduct the transaction off-platform.

Marketplaces that fail to capture the transaction often resort to a lead generation, paid placement or subscription-based revenue model. The classifieds model has traditionally worked on paid placement. Dating websites and B2B marketplaces work on a subscription-based model while several financial comparison engines work on a lead generation model. However, lead generation models are attractive only at very high levels of activity and subscription-based revenue models make the chicken and egg problem worse than it already is. If your monetization model involves extracting a cut from the buyer-seller transaction, you need to figure out a way to own the transaction.

Solving the buyer Decision-Making Problem

Services marketplaces like Fiverr, Groupon and Airbnb try to solve this problem by preventing the users from directly connecting before the actual transaction. These marketplaces typically try to provide all the information that a buyer needs to make a transaction decision. Groupon features services from sellers that are largely standardized. While less standardized, Airbnb and Fiverr try to provide enough information for the buyers to make a decision without having to contact the seller.

Additionally, some marketplaces charge the buyer ahead of the transaction and remit money to the service provider after the provision of services, thus providing some insurance to the buyer, encouraging her to transact.

The Two-Pronged Challenge of Professional Services Marketplaces

Unfortunately, the above strategies fail with professional services marketplaces for two reasons.

First, it is much easier to take the transaction off-platform in the case of marketplaces connecting professionals. Freelancer marketplaces like Elance or expert marketplaces like Clarity are particularly prone to off-platform transactions for two reasons:

a) Clients need to know information about service providers before making a transaction decision

b) Once the end users know each other, they can potentially connect directly on LinkedIn or other networks, thus avoiding the platform cut

Second, professional services marketplaces require discussions, exchanges and workflow management during the provision of services before the actual charge can be levied. As a result, charging the buyer ahead of the transaction is all the more complicated.

So how do professional services marketplaces own and retain the transaction?

To own the transaction, professional services marketplaces need to think like SAAS businesses!

This may sound counter-intuitive. After all, a marketplace’s goal is to connect the two sides, complete the transaction and get out of the way, isn’t it?

Clarity’s early success illustrates that a marketplace’s role may be a lot more than just connecting buyers to sellers. Clarity connects advice seekers with experts. Traditionally, such marketplaces would connect the two sides, charge a lead generation fee and allow them to transact off-platform. Clarity provides additional call management and invoicing capabilities that serve to capture the transaction on the platform. Since the call management software manages per-minute billing, advice seekers have the option to opt out of a call that isn’t proving too useful. For the experts, the integrated payments and invoicing provides additional value. There is enough value for both sides to prevent them from leaving the platform to avoid the cut.

Clarity is one of many examples of platforms which are using workflow management solutions to capture the transaction. Services marketplaces like Elance focus on providing work-tracking and billing solutions that provide value to both sides and capture the transaction on-platform.

When marketplaces behave like SAAS businesses, the following design principles are commonly observed:

1. The SAAS workflow tools should create additional value for both sides, not just for one. This prevents either side from abandoning the platform for the transaction.

2. The SAAS tools should remove frictions in the interaction.

3. The interaction management tools should feedback into some form of on-platform reputation. Reputation is an added source of value that ensures stickiness to the platform. Clarity calls are followed by a request for rating the other side. Over time, the rating increases discoverability of an expert on the platform and acts as social proof for further callers.

The Added Benefit of Engagement and Stickiness

Workflow and interaction management tools also help make the platform more sticky. The traditional marketplace model has a very transactional use case. There is no need for a user to return often to such a marketplace. Users turn up only when they’re looking for something specific. With workflow management tools, the post-matching interactions are also captured on the platform, which encourages users to return often and to actively use the platform.

Secondly, a marketplace is only as good as the liquidity of available suppliers. As a result, there is no real need for a buyer to stick to a particular marketplace, transaction after transaction, especially if two or more competing marketplaces have similar liquidity and choice. Workflow management solutions help create stickiness because the requirement of on boarding on and learning new workflow management tools acts as a greater barrier to switch and can potentially keep users loyal to a particular marketplace.

The SaaS-First Marketplace

In recent times, we have been seeing the model flipped. Businesses are now building SAAS workflow solutions first to get entrenched among the demand side and then opening out the marketplace, to get suppliers in. An invoicing service spreads out to become a B2B order management platform. A payroll software provider expands to append a marketplace that can bring in freelancers which are then managed using the same payroll software. This also solves the chicken and egg problem by staging the launch of the marketplace.

Summary

In general, if you run a marketplace that requires services to be exchanged remotely, provisioning workflow management solutions to facilitate this exchange is a great way to own the transaction and create greater engagement and stickiness for users.

Tweetable Takeaways

Owning the transaction is the key success factor for a marketplace. Tweet

SAAS tools for workflow management help retain the transaction on a marketplace. Tweet

The new durable marketplace model: Start with a SAAS business, open up one side to create a marketplace. Tweet

This article was first featured on Sangeet’s blog, Platform Thinking (http://platformed.info). Platform Thinking has been ranked among the top blogs for startups, globally, by the Harvard Business School Centre for Entrepreneurship