“I don’t care about the number of customers we have, I care about revenue!” “Raul,” one of our investors, screamed at me during the closed session of one of our board meetings. I had just finished showing the growth in our customers.
We had grown to 179 paying customers in our first year, and we were well on our way to getting over 1000 paying customers in our second year. But Raul, well, it was just another day in the life of dealing with him.
I just grit my teeth, and continued on with the rest of the presentation. Raul, who was the cofounder of one of the most successful companies in our industry, knew how the Analog model worked.
Raul knew, because he was cofounder of a very successful Analog company, that the model is similar to a SaaS company because there is lots of recurring revenue. That’s the beauty of the business model; when you win a piece of business, you’re in for the duration of the customer’s project.
So, why was Raul upset if we were doing what we were supposed to do? It goes to the paradox of building a SaaS like business:
You have to be patient when you’re building a SaaS business.
“You plant a lot of seeds, and you see what grows,” Bob, our one angel investor, said to me when we were starting out. He was the cofounder and VP Engineering/CTO of one of most successful companies ever, Linear Technology, in our industry.
Bob knew from his experience building Linear that you’re not going to have one moonshot customer that suddenly pushes your revenue to $1M or greater ARR. It’s likely going to take lots of small customers to build your revenue stream.
That’s where patience comes in. You have to relentlessly focus on the right things from the start. This takes discipline, especially when you have someone like Raul breathing down your neck. Then…
You want to focus on customer retention at all costs.
Maybe saying at all costs is too strong a statement because bad business is bad business. However, your mission is having happy customers that will be happy to give you a reference if you ask.
Don’t worry about the size of the customer. Instead treat each customer like they are your most important customer.
Your larger competitors will not care about the $1K/year customers, but you can. And here’s the beauty of that approach; small customers become large customers.
It’s just like Bob said, you plant a lot of seeds (customers) and you see what grows. Some seeds grow faster than others. This leads to the leap of faith you need to have:
Your revenue per customer will increase over time.
Our revenue per customer was all of $13 when we started. By the end of our first year, the revenue per customer was over $200.
I told Raul in our board meeting that I thought our revenue would get to $1K per customer per year by the end of our second year (it did), but Raul wasn’t in a patient mood. He wanted more revenue and he wanted it now.
Maybe in your case it will not be an impatient investor, but an impatient cofounder or an impatient engineer or two. This is where you need conviction that you will get to the promised land by doing the little things well.
That is eventually, when you plant enough seeds, the flowers will grow in SaaS business.
For more, read: How Can You Fix Your Big Sales Mistakes