4 ms·

One of the under-appreciated facets of SaaS economics is that you have to grow your growth constantly, regardless of whether you're bootstrapped or VC funded.

by ig1 8y ago

One of the under-appreciated facets of SaaS economics is that you have to grow your growth constantly, regardless of whether you're bootstrapped or VC funded. If you're steadily adding 100 customers/month you might think thats great because of the accumulating nature of subscription revenue - but actually that's a death sentence. Your churn will grow as your customer base grows. If you've got a 5% monthly churn rate then at 1000 customers you'll lose 50 customers/month. At 2000 customers you'll be losing 100 customers/month - and all of a sudden your 100 new customers a month will net out to zero. After that point you'll start losing customers. From a quick look at Buffer's baremetrics board that's what happened here. You either have to have net negative dollar churn (which is very very hard if you're selling to SMEs) or you have to have an exponential growth rate that means you can escape the churn effect and that almost always require external capital to fuel the growth.

svantana 8y ago
> If you've got a 5% monthly churn rate then at 1000 customers you'll lose 50 customers/month. At 2000 customers you'll be losing 100 customers/month - and all of a sudden your 100 new customers a month will net out to zero. After that point you'll start losing customers. Actually, in this scenario the number of users will asymptotically grow towards growth/churn = 100/0.05 = 2000 in perpetuity. So it's not a "death sentence" but will lead to growth stagnation.
- ig1 8y ago
  Yes. Plenty of SaaS businesses (both bootstrapped and VC financed) end up flatlining. How sustainable this is depends on what space you're in, generally if you're revenue flat you become much more vulnerable to external factors (competitors coming into market, CAC increasing, recession, etc).
  - T2_t2 8y ago
    This is just a weird concept. Sure, not growing is risky in the existential, everything is risky sense. Profitability makes that far less scary. The biggest cost for most SAAS business is salaries. If times get tough, letting people go is always an option, and if a company makes a 30% margin - which $1.5M and 500K profit is almost exactly - that means the non-salary costs likely need to grow by a few thousand percent before there is a profit pinch. I'd take $500K profit and control over loss making and hope. But that's just my personal risk profile.
    - ig1 8y ago
      Revenue can collapse fast in SaaS if you don't have churn under control. Let's say there's a downturn (for economic or competition) reasons and new user acquisition falls to 80/month and churn goes upto 7%. You're now losing 60 customers/month. In three months you'll be down 10% on revenue and your costs will likely be the same. This isn't a VC funded vs bootstrapped issue, it's a fundamental dynamic of the subscription mode - I've seen plenty of VC funded startups struggle with the same challenges. Living on the edge where your best efforts only net out churn is hard. Everything becomes harder from recruiting to sales. It's super demotivational to a sales and marketing team when their best effort essentially nets out to zero.
IMTDb 8y ago
The idea is to manage your company so that you generate profits at 2000 customers. At that point you have several options: - Be happy with cash piling up in the bank, and redistribute it to employee/investors/founders. - Lower the churn. - Increase your ARPU. - Use the profits to create anew product/offering that generates new growth.

by ig1 8y ago

svantana 8y ago

> If you've got a 5% monthly churn rate then at 1000 customers you'll lose 50 customers/month. At 2000 customers you'll be losing 100 customers/month - and all of a sudden your 100 new customers a month will net out to zero. After that point you'll start losing customers. Actually, in this scenario the number of users will asymptotically grow towards growth/churn = 100/0.05 = 2000 in perpetuity. So it's not a "death sentence" but will lead to growth stagnation.

ig1 8y ago
Yes. Plenty of SaaS businesses (both bootstrapped and VC financed) end up flatlining. How sustainable this is depends on what space you're in, generally if you're revenue flat you become much more vulnerable to external factors (competitors coming into market, CAC increasing, recession, etc).
- T2_t2 8y ago
  This is just a weird concept. Sure, not growing is risky in the existential, everything is risky sense. Profitability makes that far less scary. The biggest cost for most SAAS business is salaries. If times get tough, letting people go is always an option, and if a company makes a 30% margin - which $1.5M and 500K profit is almost exactly - that means the non-salary costs likely need to grow by a few thousand percent before there is a profit pinch. I'd take $500K profit and control over loss making and hope. But that's just my personal risk profile.
  - ig1 8y ago
    Revenue can collapse fast in SaaS if you don't have churn under control. Let's say there's a downturn (for economic or competition) reasons and new user acquisition falls to 80/month and churn goes upto 7%. You're now losing 60 customers/month. In three months you'll be down 10% on revenue and your costs will likely be the same. This isn't a VC funded vs bootstrapped issue, it's a fundamental dynamic of the subscription mode - I've seen plenty of VC funded startups struggle with the same challenges. Living on the edge where your best efforts only net out churn is hard. Everything becomes harder from recruiting to sales. It's super demotivational to a sales and marketing team when their best effort essentially nets out to zero.

IMTDb 8y ago

The idea is to manage your company so that you generate profits at 2000 customers. At that point you have several options: - Be happy with cash piling up in the bank, and redistribute it to employee/investors/founders. - Lower the churn. - Increase your ARPU. - Use the profits to create anew product/offering that generates new growth.