I’m pleased to announce that I was recently featured in a six-part SaaS podcast mini-series on SaaShimi hosted by Aznaur Midov, VP at PNC Technology Finance Group, a debt provider who works primarily with private equity (PE) firms for SaaS buyouts, growth capital, and recapitalizations.
Let’s talk first about the mini-series. It’s quite a line-up:
- A Brief History of SaaS with Phil Wainewright, co-founder of Diginomica and recognized authority on cloud computing.
- Key SaaS Metrics with me.
- Building a Sales Org with Jacco van der Kooij, founder and CEO of Winning by Design
- Building a Marketing Org with my old friend Tracy Eiler, CMO at InsideView and author of Aligned to Achieve, a book on aligning sales and marketing.
- Building a Customer Success Org with Ed Daly, SVP of Customer Success and Growth at Okta.
- Raising Capital with my friend Bruce Cleveland, partner at Wildcat Ventures and former operational executive at Oracle and Siebel.
The series is available on RedCircle, Apple podcasts, and Spotify.
Now, let’s talk about my episode. The first thing you’ll notice is Aznaur did the interviews live, with a high-quality rig, and you can hear it in the audio which is much higher quality than the typical podcast.
In terms of the content, Aznaur did his homework, came prepared with a great set of questions in a logical order, and you can hear that in the podcast. His goal was to do an interview that effectively functioned as a “SaaS Metrics 101” class and I think he succeeded.
Here is a rough outline of the metrics we touched on in the 38-minute episode:
- ARR vs. ACV (annual recurring revenue vs. annual contract value)
- ARR vs. MRR (ARR vs. monthly recurring revenue)
- TCV (total contract value)
- RPO (remaining performance obligation)
- Average contract duration (ACD)
- Customer acquisition cost
- Customer acquisition cost (CAC) ratio
- CAC Payback Period
- Renewal and churn rates
- ARR- vs. ATR-based churn rates (ATR = available to renew)
- Compound vs. standalone metrics
- Net dollar expansion rate (NDER)
- Survivor bias in churn rates
- The problem with long customer lifetimes (due to low churn rates)
- LTV/CAC (LTV = lifetime value)
- Net promoter score (NPS)
- The loose correlation between NPS and renewals
- Intent to renew
- Services gross margin
- Cash burn rate
- The investor vs. the operator view on metrics
Who else but my old friend Jim Milbery, a founding partner at ParkerGale, could come up with a podcast called the Private Equity Funcast, complete with its own jingle and with a Thunderbirds-inspired opening?
Jim and I worked together at Ingres back in the — well “pre-Chernobyl” as Jim likes to put it. When we met, he was a pre-sales engineer and I was a technical support rep. We’ve each spent over 25 years in enterprise software, in mixed roles that involve both technology and sales & marketing (S&M). Jim went on to write a great book, Making the Technical Sale. I went on to create Kellblog. He’s spent most of his recent career in private equity (PE) land; I’ve spent most of mine in venture capital (VC) land.
With a little more time on my hands these days, I had the chance to re-connect with Jim so when I was in Chicago recently we sat down at ParkerGale’s “intergalactic headquarters” for a pretty broad-ranging conversation about a recent blog post I wrote (Things to Avoid in Selecting an Executive Job at a Startup) along with a lot of banter about the differences between PE-land and VC-land.
Unlike most podcasts, which tend to be either lectures or interviews, this was a real conversation and a fun one. While I’m not sure I like the misparsing potential of their chosen title, Things To Avoid in Selecting an Executive Job with Dave Kellogg, I’ll assume the best. Topics we covered during the fifty-minute conversation:
- The pros and cons of CEOs who want to get the band back together.
- Pros and cons of hiring people who have only worked at big, successful companies and/or who have only sailed in fair weather.
- The downsides of joining a company that immediately needs to raise money.
- How CMOs should avoid the tendency to measure their importance by the size of their budget.
- Should companies hire those who “stretch down” or those who “punch above their weight”?
- The importance of key internal customer relationships (e.g., the number-one cause of death for the CMO is the CRO) and how that should affect the order of your hires when building a team.
- Feature-addicted founders and product managers (PMs), technical debt, and the importance of “Trust Releases.”
- Pivoting vs. “traveling” when it comes to startup strategy.
- The concept of Bowling Alleys within Bowling Alleys, which we both seem to have invented in parallel. (Freaky.)
- The difference between knocking down adjacent markets (i.e., “bowling pins”) and pivots.
- Corporate amnesia as companies grow and surprisingly fail at things they used to know how to do (e.g., they forget how to launch new products).
- My concept of reps opening new markets with only a telephone, a machete, and a low quota.
- My pet peeve #7: salespeople who say it’s impossible to sell into an industry where the founders managed already to land 3-5 customers.
- The difference between, in Geoffrey Moore terms, gorillas and chimps.
- How there are riches in the niches when it comes market focus.
- How feature differentiation can end up a painful axe battle between vendors.
- Thoughts on working for first-time, non-founder CEOs in both the PE and VC context.
- The difference between approval and accountability, both in formulating and executing the plan.
Here are some other episodes of the Private Equity Funcast that I found interesting:
So my two favorite podcasts are now The Twenty Minute VC on the venture side and The Private Equity Funcast on the PE side. Check them both out!
Thanks for having me on the show, Jim, and it was a pleasure speaking with you.
Just a quick post to highlight the fact that last week I was the featured guest on Episode 142 of the Official SaaStr podcast produced by the SaaStr organization run by Jason Lemkin and interviewed by a delightful young Englishman named Harry Stebbings (who also runs his own podcast entitled The Twenty Minute VC).
In the 31-minute episode — which Harry very nicely says was “probably one of his favorite interviews to record” — we cover a wide range of my favorite topics, including:
- How I got introduced to SaaS, including my experience as an early customer of Salesforce in about 2003.
- Challenges in scaling a software business, learned at BusinessObjects as we scaled from $30M to $1B in revenues, as well as at MarkLogic and Host Analytics.
- My favorite SaaS metric. If you had to pick one, I’d pick LTV/CAC.
- Why simple churn is the best way to value the annuity of a SaaS business.
- The loose coupling of customer satisfaction and renewal rates.
- Why SaaS companies need to “chew gum and walk at the same time” when it comes to driving the mix of new and renewal business.
- User-based vs. usage-based pricing in SaaS and how the latter can backfire in disincenting usage of the application.
- My thoughts on bookings vs. ARR as a SaaS metric. (Bookings is generally seen as a four-letter word!)
- Why SaaS companies should make “the leaky bucket” the first four lines of their financial presentation.
- Why I think it’s a win/win when a SaaS company gives a multi-year prepaid discount that’s less than its churn rate.
- Why I view non-prepaid, multi-year deals as basically equivalent to renewals (just collected by finance/legal instead of customer success.)
- Why it’s OK to “double compensate” sales and customer success on renewals and incidental upsells, and why it’s OK to pay sales on non-incidental upsells to existing customers (don’t put your farmer against someone else’s hunter).
- Why you can’t analyze churn by analyzing churn and why you should have a rigorous taxonomy of churn.
- My responses to Harry’s “quick fire” round questions.
You can listen to the podcast via iTunes, here. Enjoy!