Friday, October 10, 2008

The Bessemer 10 laws of SaaS - Fall 2008 Release

When we first published Bessemer’s Top 10 Laws for Being "SaaS-y" in early 2008 in conjunction with our annual invitation-only SaaS CEO Summit, we were overwhelmed with the positive response and feedback we received. We continue to incorporate the best elements of this feedback into our evolving SaaS success profile that follows below. Like SaaS products themselves, we now intend for these laws to be periodically refined through major releases to reflect the changing landscape of the SaaS world. Here is theFall 2008 version:

  1. Your key monthly business metrics are: CMRR (Committed Monthly Recurring Revenue), Churn, and Cash flow - “Bookings” is for suckers

  2. Customer Acquisition Cost (CAC) and Customer LifeTime Value (CLTV) are the best indicators of long term value creation

  3. Tune before you scale: the Sales Learning Curve is even more critical for SaaS and it takes at least $300k MRR to climb it. Stop at three sales reps until at least two of them are making $100K MRR quotas

  4. Separate your “hunters” and “farmers” and pay them all on CMRR growth

  5. SaaS is a whole new ecosystem where traditional IT channels don’t work – Focus your business development efforts on business services channels, but you will need to sell directly for a long time as these new set of partners are not easy to ramp-up

  6. By definition, your sales prospects are online - Savvy online marketing is a core competence (sometimes the only one) of every successful SaaS business

  7. Stay local - Prove your business in North America first. Only after reaching $1M in CMRR should you consider hiring European sales and services execs behind customer demand. Save Asia for post-IPO

  8. Single instance, multi-tenant, single datacenter - Have only one version of the code in production. Really. “Just say no” to on-premise deployments

  9. The most important part of Software-as-a-Service isn’t “Software” it’s “Service”!

  10. Be prepared to cross the desert - SaaS requires R&D and sales expense up front for a multi-year stream of revenue, so it demands enough investment capital to fund 4+ years of runway. Load up for the long trip and pace your consumption of calories!

BONUS LAW: You can ignore one of these, but not more than two. Great companies innovate, but pick your battles!

If you are interested in learning more about the Bessemer 10 Laws of SaaS, you can listen to the webminar we did earlier this week with Salesforce by clicking on the picture below:

You can also download the full white paper on the SaaS section of the Bessemer website or browse quickly through the slides on slidehsare