Dave Lambert grew up in Colorado and moved to the Bay Area to attend Stanford. Right after college he started a computer hardware company which he ran for a decade. He followed that up with a software dot-com company which he ran for about 5 years before selling to a competitor. WorkMetro began as a transactional company, but in the mid-2000s pivoted to a subscription model. This was before people were really using CAC (customer acquisition cost), LTV (lifetime value) and churn.
Lambert stresses the importance of these KPIs for all businesses, from small startups to Fortune 500 companies. Once you calculate the lifetime value relative to CAC and the churn rate, you’ll have the answers to a lot of questions, from whether or not you have a profitable business model, to if it’s time to scale.
With so many companies he works with making errors in how they calculate these numbers, Lambert will share how to use these numbers properly.“Thinking from a KPI perspective in business, it’s all about increasing MRR. You should throw away the concept of bookings.” - @seedstagedave Click To Tweet
Another major mistake which Lambert often sees SAAS startups making is how to incentivize sales. This mistake goes back to not properly evaluating those critical KPIs. For instance, if one sales rep sells a 2-year subscription for $1,000/month, while a another sells 2 1-year subscriptions for the same price, then the second sales rep has actually provided twice as much value as the first and should be incentivized accordingly. It is the monthly recurring revenue (MRR) that is the most important, not the length of the contract. “Thinking from a KPI perspective in business, it’s all about increasing MRR. You should throw away the concept of bookings.”“Real product market fit is when you’ve created a product that meets the needs of your customers so well that they’re literally pulling your product away from you instead of you having to sell.” - @seedstagedave Click To Tweet
An additional idea which Lambert so often sees being misunderstood is product market fit. While a lot of people think product market fit is as simple as selling your product, “real product market fit is when you’ve created a product that meets the needs of your customers so well that they’re literally pulling your product away from you instead of you having to sell.”
A final concept which Lambert plans to cover in his presentation is pricing. While this topic is both complex and critical, he finds that too often, founders have given it little thought, let alone plan for optimization. Lambert sees two frequent mistakes here.“If only 0-10% of prospective customers are saying no to a price then you’re charging way too little.” - @seedstagedave Click To Tweet
The first is that people don’t do the testing to find out what the value of their product is to customers. And as a result they charge too little. “A lot of companies operate on the concept which says the best pricing is the pricing where no customer says no because it costs too much. If only 0-10% of prospective customers are saying no to a price then you’re charging way too little.” Lambert explains that it takes confidence and experimentation to continually raise the price until you get pushback.
The other big mistake that Lambert sees SAAS startup founders making with regards to pricing is when they offer a single product with single metric pricing. This can lead to a scenario with an unlimited plan where an enterprise level software company is paying the same as a tiny company. To get around this you can create a Pro version with a certain feature set that large companies would need.
Though in business for nearly a decade, Lambert thinks of Right Side Capital as his third startup. A startup that is in the business of funding other startups. Join Founders Network to learn more about what early stage founders need to know about building a successful SAAS company.
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