The Angel VC
100 million Internet company. This doesn’t mean that I disagree with Boris’ article. I believe our views are similar pretty, and generally “my” five ways are just a somewhat different and more granular look at Boris’ two ways. The y-axis shows the average revenue per accounts (ARPA) per season. 100 million in annual revenues. Both axes use a logarithmic level.
Salespeople sometimes refer to “elephants”, “deers”, and “rabbits” when they discuss the first three categories of customers. To increase the metaphor to the 5th and 4th type of customer, let’s call them “mice”, and “flies”. Just how can you hunt 1,000 elephants, 10,000 years, 100,000 rabbits, 1,000,000 mice or 10,000,000 flies? Let’s check out it backwards order.
In order to get to 10 million energetic users you will need approximately 100 million people who download your app or use your website. 100 million in ad revenues, you need dozens of an incredible number of users. I know of only two ways for doing that (and something mega-outlier which breaks all rules, Google). The first one is to have a product that is inherently cultural and has a higher viral coefficient (Instagram, Snapchat, WhatsApp). The second one is a huge amount of UGC (user-generated content), which leads to large amounts of SEO traffic and some level of vitality. Good examples of this second option include Yelp or our portfolio company Brainly.
100 per calendar year, you need to get at least 10-20 million people to try the application. That is – again – a gross simplification, but I believe it’s order-of-magnitude correct. To get to 10-20 million users, you need some degree of vitality almost, – maybe not Snapchat-like vitality too, but some cultural writing or “powered by” -morality. Great types of this category include Evernote and MailChimp.
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If you’re an eCommerce business you might be able to acquire one million customers using paid marketing, but it requires large sums of funding. 1k. To acquire 100,000 of the businesses you will need something in the order of 0.5-2 million trial signups, depending on your conversion rate. 2,700 (assuming the average customer lifetime of three years and a gross margin of 90%) and that you would like your CLTV to be 4x your CACs (customer-acquisition costs).
675 to acquire a customer. 67.50 per signup (presuming a no-touch sales model where your CACs can go completely into lead generation). Most SaaS products aren’t inherently viral, there usually isn’t enough inventory to make a paid advertising work at range, and cold getting in touch with usually fails at this ARPA level. There is no silver bullet, however the closest thing to a silver precious metal bullet is inbound marketing – besides having a fantastic product with an extremely high NPS (net promoter score) and being obsessively focused on funnel optimization. I’ve discussed this in greater detail in my own “DOs for SaaS startups” series: Create an awesome product, Make your website your best marketing person, Fill the funnel, Create a repeatable sales process.
Another option is an OEM strategy (i.e. getting your product written by big partners), which could work but comes with its own challenges. Interestingly, hunting rabbits look much less straightforward than hunting flies or hunting elephants. Why we’ve a strong focus on rabbit hunting SaaS companies nonetheless is something for another post.
10k per calendar year each, most of the rabbit-hunting strategies apply. 10k per year usually isn’t enough to make traditional enterprise field sales work, and you likely need to stillget 100,000 or even more leads. The main difference is that whenever you’re hunting deer you can use an inside sales force to close leads also to generate leads possibly. It also means that you can pay channel and VARs partners a good commission, although I’ve rarely seen this work in SaaS.
SaaS companies sometimes start as rabbit hunters and broaden into deer hunting overtime. Like it or not, the majority of the largest SaaS companies derive most of their profits from selling expensive subscriptions to large businesses. 100 million businesses is relatively simple. 100k you will need from each of them is less than they spend on the salary of 1 executive. I believe there’s lots of truth in that.