Looking beyond RR and LTV

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SAAS had emerged as very huge phenomenon in software industry around ten years ago. Most web, cloud and mobile software businesses are operating on SAAS model. Performance indicators related to startup growth are centered around Recurring Revenues, Life Time Value of customer etc.

Recurring revenue along with life time value is seen as a kind of assurance on long term opportunity of revenues and profitability for a software company. Of course we have to consider market size and share there. But most SAAS businesses evaluate themselves using these parameters. According to me, these needs rethinking.

Paradigm shift can change the dynamics of lifetime values and recurring revenue. The way digital technology and information technology is evolving, we are coming across big paradigm shift every 5-8 years (Internet, Mobile, Cloud, BigData, IoT, AI etc ).

Such paradigm shifts in world of IT and digital technoloy makes and breaks many enterprises. SAAS companies which are considered to have very attractive LTVs and RRs might not be relevant even in few years. So the other way to look at startup growth and sucess metrics is startup’s ability to stay relevant.

There are companies which are decades old and are still selling desktop based software on one time license purchase model where they dont have RRs. They are still huge and successful (Companies like Adobe or Autodesk and many more). They still are leader in their space. One reason why they were successful was they stayed relevant throughout decades. They innovated. That is obviously biggest quality to look at in order to measure the company in my opinion.

Opportunity of revenue and profit always relates to how much value a companies/products are providing to customers and markets overall. RR doesn’t ensure revenues forever obviously. If you stay relevant and keep offering new things to customers, you will keep making money. It is that simple. Because a business In general will always earn fair profits if they are providing fair values to customer in exchange of what they are charging for it.

Since we have seen early ten years of SAAS revolution, we have seen many software startups become million dollar companies and few even went public, becuse of these SAAS metrics dynamics that enables huge profit margins. I am talking about products which were just SAAS alternatives traditional software. Earning huge profits can’t continue forever though. So as in every business, there will be more compeition. And probably in next five to ten years SAAS market will become competitive in all categories of products overall. There will be multiple similar products from different companies fighting for market share by competitive pricing. And margins will have to go down. Ultimately the companies which will really stay relevant for longer and make it big will be the ones which can keep up with paradigm shift of technology. Those who can continue to innovate and excell in the product. Those who can provide the best to customer.

Ultimately, companies which innovates continuously, excels in product and stays relevant over tech paradigm shifts should be valued more, instead of looking at just “glamor” of SAAS with fancy RRs and LTVs.

How techie founders should un-innovate

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Lot has been written about innovation. But this is about kind of un-innovation. How as a techie-turned-founder you can un-innovate your product for to help your startup.

It is perceived that startup founders, especially who are techie, are innovator and they build their products innovatively. Founders and entrepreneurs in their life have read lot about how to think out of box and how to innovate and all. Stories about Pages, Zuckerbergs , Bezos of world you know. All of these leads relatively less-experienced or first time techie entrepreneur to unknowingly put more focus on product innovation and dreaming big the very idea of their product they are building or want to build. This becomes real problem in order to build a real business. Let’s explore how.

Founders come up with idea. And most of the time they think their idea is unique, smart, innovative and big. They keep doing lot of brainstorming on idea. This process is more or less related to dreaming. Like we dream about how we want to visit places or about perfect life partner we want. In dream we tends to be optimistic and more or less unrealistic. Same thing happens with thinking about idea and products. Founders make some wrong assumptions with such favorable thinking. They miss viewing things from from “real business” perspective. Instead they end up thinking about making grand product of their which will change the world.

You want to create Company not product

Founder should keep reminding themselves that they are out to create a company and not product. They should always think about and work on real business problems instead of focusing too much on product design ideas. Business problems like issues related to capital, product adoption challenges, resources , delivery etc. It’s widely known that ideas don’t matter , execution does. Before Zuckerberg built facebook , social network wasn’t new. Before Bill Gates built PC , home computers wasn’t new thing.

Be flexible when it comes to product path

If you think you are smart and visionary and build features in advance , you are mistaken. One person can not predict product path however great visionary she might be. If you dont be too open and flexible to think over what you has been dreaming then there are chances your product will fail some day. When you go on and run the actual business for months you will get lot of different perspectives on what actually your target market needs that was never part of your dream product path and what your dream product path has that people don’t need at all.

Also lets not confuse this with doing feasibility check or market study or achieving product-market fit. That is obvious and must have already been done if they are building product, even if they are first-timers. This is about how you shape product further with your innovative-natured mind. Its about small feature or sub product or a product-business model.

Prioritize sales before product

When you are techie founder with that innovative natured brain, another thing you most likely will do is to be desperate about releasing that next great feature. You think if this feature is there my product will sell like cupcake. No. It never ends there. It will become continous process rather than one instance. Ultimately you are loosing focus from sales. Which is inwardly affecting how you think about product because you lack critical data (feedback from sales ) which can help you in taking product in right direction. This should never happen. If specific feature isn’t there yet, qualify your leads accordingly. But keep working hard for sales. First, its good for business. Second you it will help in deciding right path for product.

Think business

When you think about product as a techie founder with innovative-natured mind, its very different from let’s say what someone like IIM grad investment banker would do. I understand great companies are built by innovative techie geek type guys and only those can have that grand vision. But grand vision for tech product needs solid execution. And this is something all techie-turned-CEO regrets about, that if they would’ve thought about certain things from certain perspective it would have been better today. You need to start changing the way you naturally think about product and company overall, in order to be able to understand different perspectives. One way to make this easy is just think about numbers always. How much days a feature will take ? How many prospects requested it ? How much investment will be required ? How much revenue growth can be achieved with this ? By asking bottom line questions like VC-types and Banker-types would ask.