SaaS Business Model (And the SaaS Metrics that Guarantee Success)

SaaS Business Model (And the SaaS Metrics that Guarantee Success)


– If you are building a SaaS business, and you are navigating what
I call the shawshank crawl, to get to that promised land, to get to the product market fit, and get to that next stage of growth, I’ve been there. In this video, I’m gonna walk you through the exact framework I’ve used in every SaaS business
I’ve worked on, or advised, to actually navigate that path, and accelerate your path
to product market fit. Intro. (funky music) (beeping) What’s up everybody, welcome
to Unstoppable, I’m TK. On this channel, I help
startup founders like you navigate the path to getting
to product market fit, getting to that next stage of growth, with an unstoppable strategy. I drop a video like this
every single Sunday, so if you’re new, welcome. Be sure to hit the subscribe
button and the bell icon (bell clanging) so you get notified when
I drop a video like this every single Sunday. Now, if you’re a startup founder, and you’re navigating that
path to product market fit, I call it the shawshank crawl. It’s the worst thing to go
through, but also the best thing, because it makes or breaks your startup. Having done this a few
times, I took Tout App, my last company, from
zero to seven million ARR, and having actually advised
other SaaS companies to actually navigate this path, I follow a very specific framework, to actually navigate it in the right way. So on this video, I’m gonna
do three things for you. Number one, I’m going to explain the origins of this framework,
how this came together. Number two, I’m going to explain
the five key SaaS metrics, that actually drive it. And number three, I’m going to explain how you can actually adopt this. If you’re excited to dig in, go ahead and hit that like button, smash it if you like, helps
us out, helps you out, spreads the word, and let’s get started. Now, the origins on this framework actually comes from two
very important ideas. The first idea was popularized
by a guy named Jim Collins. He calls it the flywheel effect. He says that every single business, whether it’s a SaaS business or not, has a natural flywheel, they
have a certain flywheel. And every successful one
identifies that flywheel, identifies the core
components in that flywheel, and optimizes for it,
so that it goes faster, and faster, and faster,
and faster, and faster. Jim Collins first wrote
the book “Good To Great”, which you can check out by
following the link below, and then he wrote the followup to that, it’s not quite a book,
he calls it a monogram, it’s called “Turning The Flywheel”. You can check that out
also, I’ll link to it below. In this book, he highlights that if you can actually identify what is the flywheel that
drives your business, and you can identify the key components that really, really drives it, and makes it go faster and faster, and you make decisions to
actually optimize for it, then you can build a successful,
fast growing business. This idea is so powerful, Jim
Collins personally coached the executive team at Amazon, to develop their flywheel very early on. And he saw how they took
that idea and ran with it. And it’s pretty self explanatory on how successful Amazon is today. The second idea was introduced nearly 12, maybe 13 years ago, on this video, I’ll link to it below, by a guy named Dave McClure. He started 500 Startups, he
was one of my first investors, and he introduced this
idea of pirate metrics. He said that they’re a very
specific set of metrics that you really wanna optimize for, if you’re looking to grow your startup. Instead of starting to
trying to think like oh, we need to get to product market fit, and it being this very nebulous thing, he said here are the five key metrics that you actually need to follow that will allow you to measure and focus on the right
areas of this business. And that I kinda ran with. I took those two ideas,
and I said all right, every business has a natural flywheel, and there are components to that flywheel that you need to identify. And if I’m working on a SaaS business, Dave McClure says these
are the five metrics. And so when you combine the two, you get the most powerful
framework that you’ll ever find in driving and navigating the path to the next stage of growth, and of product market fit
for your SaaS business. So at this point you might be wondering, all right, those are the origins, that’s how you came up with the idea. What are the metrics, how do I use it, how does this flywheel work? Let’s dig in. So when you think about
flywheel, and your SaaS business, the best way to think about it obviously is you’ve got your flywheel right here, and at the core of it, you have your ICP. That’s your ideal customer profile. Now if you don’t have an ICP yet, if you don’t have, haven’t honed in on an ideal customer profile, you should check out this
video that I did on it, I’ll link to it below, let’s keep going and you can check it out after this. Once you have your ICP,
that’s your customer, you start to build out the
components of your flywheel. The components of your flywheel
will actually determine what areas you wanna focus on and tweak, and if you tweak those things, they’ll lead from one thing to another, and one thing to another, and it’ll make the whole flywheel go faster and faster and faster. And if you can optimize for that, then you’ve got a massively
successful business. In your case, you’ve got a massively successful SaaS business. This is where part two comes in. Part one is the flywheel,
which Jim Collins came up with, and then part two are the core metrics of every SaaS business that
you just gotta monitor, when you’re thinking about
marketing it, and growing it. What are those metrics, well
let’s find put ’em down. So basically we’re gonna have one, two, three, four, five metrics. And when you think about
those five metrics, the most important metric is
you have your ideal customers. These are your ideal customers and they don’t know
about you at this state. And the flywheel, the
first part, is acquisition. The second part is activation, and I’ll explain what each of these are. The third one is revenue. Fourth one is retention. And the fifth one is referral. And that’s how you get A-A-R-R-R. And the beauty of this, and the beauty of these five metrics is they all build on one another. Meaning you can go and acquire a person to come into your SaaS app, but that doesn’t necessarily
mean they’ll activate. So when you actually acquire someone, that means they become a user. They become a user and
they’re like all right, I actually wanna use this application, put me in the demo,
let’s like jump into it. Then you measure activation. Activation means they take
a meaningful set of steps to actually move forward in the process. Meaning, if they just
register and then they leave, and they never come back,
they never activated. But, for example, for Tout
App, activation for us was they did three things. One, they actually sent a test email, number two, they installed our Chrome plugin to plug into Gmail, and number three, they actually
opened up our live feed. If they did those three things, then we considered themselves activated, because we’re like all right, we got a hook in there,
they got a full experience. So, you got acquisition, and
then you’ve got activation. From activation, you then have revenue. Now there are different
types of SaaS businesses, sometimes they’ll do premium so they start using the product for free, and then you upsell them. Other times they do a trial. But the whole point is you wanna see how many people you acquire, how many of them actually get activated, and out of those how many people actually convert to revenue. Once you’ve done that, obviously
the next one is retention. There’s a reason why
SaaS businesses command such a high premium for investors, and also even in the public markets. It’s because of this retention piece. Most businesses sell a customer a widget, and then say thank you, and then hope that they’ll
get business again. With SaaS businesses, they
know they’re gonna get a predictable amount of revenue, hopefully, if churn is not high, all the time, forever. And that’s really powerful, because now you have a
consistent relationship with the customer,
getting a predictable flow of revenue coming in. And so you really wanna figure
out what your retention is. And then finally, if you actually acquire a user or a customer, or a
client, whatever you call them, and then they activate, and
then they convert to revenue, and then they keep using it, and then they love it so much they start telling other people about it, either through word of mouth, or through some referral system or through some invitation system, whatever it may go, they
invite a team member in, that is referral. And when you do that,
something magical happens. Because they’re referring, if the other person that’s being referred actually says yes, then it
goes back into your ICP, and goes back into acquisition. What this means is that
now you’ve got a flywheel. And these five metrics,
if you optimize for them, it means that you’ve got
an optimized flywheel, that will go faster,
and faster, and faster. Let me explain, the power in this is the fact that you’re gonna track each of these metrics separately. You’re gonna track what
percentage of people actually go from being acquired, to actually being activated. You’re gonna track what
percentage of people that activate, actually
convert to revenue. And you’re gonna track out of the people that convert to revenue,
what percentage of them actually go to retain themselves. And from retention, you’re gonna track what percentage of them
actually go to refer people. And out of that, you’re gonna track, how many of those referrals actually turn back into acquisition. This is the flywheel
of every SaaS business. And these five metrics are
what governs that flywheel. If you can start to tether
yourself to this flywheel, and these five metrics, if you start to make decisions on how you actually optimize
each of these core metrics, and if you start to
actually move these metrics in the right direction, then you can optimize the flywheel, and you can navigate that
path to product market fit, and that means you can
accelerate that path, to that next stage of growth. If you’re starting to see
the brilliance of this, so instead of just willy nilly doing all kinds of crazy things, and thinking that you’re
just one feature away from product market fit, but instead you tether
yourself to this framework, and these set of metrics,
and keep optimizing, then you get to operate the
two levers that matter most for you, as a startup founder. You either ship code, or close deals. I even made a tee shirt about it. Ship code, close deals. Because you’ll actually
look at these key metrics, you’ll be able to say all right, are we closing more deals,
or do we need to ship code, to actually impact one of these metrics. And you get out of that deathtrap of thinking you’re just
that one extra feature away, from really making everything work. But instead, you can say well, we need to improve acquisition, or we need to improve activation, or we need to improve revenue. You can actually hone in on those areas, and operate the lever appropriately, whether you need to close
deals, or ship code, based on every client interaction. If you’re starting to see
the brilliance in this, can I just get a yes
in the comments below? I wanna make sure you’re with me on this. So, this is the framework that I’ve used for nearly a decade and a half, in being in SaaS businesses. It has never failed me, and
I’ve used it in multiple stages. I used it in the early stages of Tout App, I used it in the middle days of Tout App. I used it in the late days of Tout App. It always helped me really get
visibility into where we are, and what we needed to improve. It is incredibly powerful. And I hope you start to adopt it. Now, you may have questions, and are well, how do I track acquisition? And what is activation really mean? And how do you think about
revenue verses a lead? I’m gonna do a video where I dig into each
of these SaaS metrics, as my next video. I’m gonna dig deeper into
how to really implement this, and how to actually measure this, and what the right
benchmarks are for this. So, be sure to hit the subscribe button and the bell icon now, so you get notified
when I drop that episode (bell clanging)
next Sunday. Now you know how to navigate this whole crazy shawshank
crawl, to product market fit. Figuring out the SaaS metrics
for your SaaS business model is just one part of it. To get to product market fit,
you also have to figure out your ICP, you have to figure
out your sales process, your marketing process,
your market strategy, your go-to market strategy. As technical founders, which I work with a
lot of startup founders that are more technical
than sales oriented, we tend to over index, I’m
like that too, or I used to be, we tend to over index on product strategy, and we don’t put as much
effort on market strategy, and go-to market strategy. And if you start to level
off on all three of those, you can actually accelerate your path, and actually increase the likelihood of getting product market fit. This is why, if you wanna dig into this, this is why I created my “Unstoppable Product Market Fit Guide”. In my “Unstoppable
Product Market Fit Guide”, I actually go into detail on how to actually
incorporate these metrics, and how to actually
incorporate a market strategy, and product strategy, and
a go-to market strategy, so you can actually take this to market, and accelerate your path
to product market fit, and to the next stage of growth. So be sure to download
that, and the link is below, you can download it for free,
and you can check it out. And it’ll also include a special link to talk to me, one-on-one, if you wanna dig into your startup more. Lastly, if you like this
video, and got value from it, please, hit the like button. It really means the
world to me, and my team. We put a lot of effort into this. And it also helps us spread our message, here at Unstoppable. If you are part of a Slack
group, a private mailing list, whatever collaboration platform you’re on with other startup founders, that can get value from
this video, please share it. It would mean the world to us as well. And if not, just share it
with your favorite founder, that you just love. And lastly, remember
everyone needs a strategy, but when you’re with us,
yours is gonna be unstoppable. I’m TK, and I’ll see you next Sunday. (funky music) (beeping)

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About the Author: Oren Garnes

9 Comments

  1. Sir ap indian hai na aur ye videosab ke liye hoga. To kehna cha rha hu ki apki baate koi ni sunta qki ap srif english wale ko batate hai bahot log hai jo hindi jante hai wo apki video dekhte hi ni apko loss ho rha h aur ap business ki baat kr rhe hai. English just a language not to be intelligent. Plz make ur video in hindi for hindi people. Tab dekhyega apki views kaha se kaha jati hain. Sry itna bolne ke liye

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