We recently had the pleasure of bringing together Stripe’s Ed Moore (Head of EMEA SaaS Platforms), SciFi VC’s Nellie Levchin (Partner) and our own Alex McCracken (Head of Venture Relationships) for the webinar SaaS Metrics for Operational Excellence and Successful Fundraising.
Moderated by Maria Pereda, Partnerships Lead here at Capchase, the panelists explored the findings of The Capchase SaaS Benchmark Report, and looked at how SaaS founders can protect their businesses and better navigate the uncertainties of 2022.
Here’s what we learnt:
To grow your ARR, focus on user experience and product quality
The Capchase SaaS Benchmark Report showed that the fastest growing SaaS companies are growing twice as fast as their peers throughout the early and growth stages. The challenge for B2B SaaS companies in 2022 is keeping ARR growing despite the difficult macroeconomic environment, which is causing business leaders across industries to slash budgets and identify areas to cut costs.
Ed’s advice for SaaS leaders was to focus on fewer things, and go deeper into the problems that you can solve for your customers. “So that means really focussing on the core of your UX, application, or experience. Also focus on your core markets or user personas, where you see real strength.”
He said that for many SaaS companies, the end goal is to have your product or service become a central operating system to your customers. One way that Stripe is working with SaaS customers to achieve that is by enabling embedded payments and financial services, as well as optimizing their checkout experience.
In addition to improving your product offering to your core markets, Alex advised SaaS leaders to understand where their ARR growth is coming from—whether it be marketing, direct sales, field sales, product led growth, or another channel.
“It’s vital to know what the factors are that are driving growth, so that you can direct spend to the right places to generate more efficient ARR growth. Companies that don’t know what their spend is generating run into problems because they’re spending in hope rather than spending based on results. In the current environment, it means they’re effectively wasting their sales and marketing spend.”
Three steps to limiting churn
During an economic downturn, it’s not only harder to generate new ARR, but customers are also more likely to churn.
Ed gave SaaS founders the following three tips to limit churn:
1) Nurture your existing users.
“Your existing users are where you’re gonna see substantive growth. They’re the ones who ideally should be in love with your product, but can also fall out of love very quickly if they have failures with that product”.
2) Align your support organization, sales organization and product organization.
“When you see failures within your product offering, and you’re seeing that in user feedback, it should be the priority for your engineering resources, to keep you on course to grow. Sometimes you see conflict when you have to grow and adapt and build new services without fixing the core fundamentals”.
3) Differentiate your product and increase customer value
“The big one that we at Stripe are focussed on is how to enable money to flow through those applications and services? At the core, embedded payments means that you’re providing simplicity and reconciliation and efficiency. Additionally, you need to think about how to provide differentiated services, particularly in the micro SMB world where access to capital is challenging. If you can differentiate your offer and align it around those components of a single accounts ledger for payments, and also provide funding to sustain them through this period, from a stickiness point of view, turning away becomes almost impossible.”
If you have to raise capital, start from a position of strength
As one of the founding partners of an early stage generalist venture capital firm, Nellie has first-hand insight into how VCs evaluate potential investments during economic downturns.
She said that ideally, you won’t have to fundraise at all this year. However if you do find yourself in that position, you need to ensure your performance in quantitative measures of growth is on par with that of top SaaS startups.
Importantly, she advised founders not to wait too long to raise capital:
She said that typically when companies go out to the market it’s either to fund their growth and scale, or to shore up their operations in order to survive. In 2022, you don’t want to be in the latter position.
Before approaching investors, she suggested that you explore all your debt options. There are an increasing number of alternative financing options available to SaaS companies, including recurring revenue based options, like Capchase.
However, she warned that you need to be cautious of who you go into business with: “I think [debt] is much like venture capital, in that you want to make sure that you pick good partners. This is a time when there’s a lot of predatory lending going on, both on the consumer and on the enterprise side. So be very mindful of who you get into business with”.
If you’ve explored all other options, and decide you do need to raise capital, she advised that you know who your biggest supporters are. “That’s where you start on the fundraising side—going back to the people that you already know are going to be your biggest supporters. That can be existing investors, but also investors that have already met you at earlier stages”.
Additionally, she said you need to pay attention to your narrative. “You want to highlight excellence in your strategic thinking and operational strengths. On the operational side, revenue and expenses are easily quantifiable. How to differentiate your product from a qualitative perspective—the narrative—is becoming a lot more important again”.
Watch the full webinar on demand
For more advice from Ed, Nellie and Alex watch the full webinar for free here.
You’ll get a better understanding of how you perform against your peers in key SaaS performance metrics, including ARR Growth, Gross Margin, LTV/CAC, Cash Runway, Debt/Revenue and Debt/Equity.
You’ll also get more detailed advice on how to:
- Grow ARR and minimize churn
- Extend your runway
- Raise capital successfully
- Avoid a down round
