Numbers that Actually Matter. Finding Your North Star
141 likes223,484 views
The document presents a detailed analysis of the financial metrics and growth trajectories of a hypothetical SaaS company over the first three years of operation, highlighting metrics like ARR, gross churn, and quick ratio. It emphasizes the importance of product-market fit, the role of leading indicators, and the concept of a 'north star' metric to gauge value delivered to customers. The analysis illustrates the challenges the company faces as it scales, including high churn and the need for new funding to maintain competitiveness.
Numbers that Actually Matter. Finding Your North Star
- 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…