Need business advice on growing SaaS business


3

Sorry for the long question, but I promise it's a good read as it includes a challenging topic on growing a bootstrapped business, which I imagine applies to many of you as well. I look forward to your insights and "business acumen."

I have a SaaS product which I built ground up (database, server, application, website, etc) and which targets clients for multiple industries (worldwide, everything from hospitality, security, to academic, etc). Growth has been good, but I'm the only person running the business, and I have a well paying daytime corp job. I'm not making nearly enough from the side business to match my fulltime salary. However, I would love advice on how I can expand the business to next level without having to put in time during the day for sales and support (very little, currently) when I'm working. As a Saas business, customer attrition is low, and over the next 2 years I expect to add on ~$12K-$16k with increasing numbers in subsequent years (word of mouth, up-selling, branding, etc.). The product offers 3 yearly subscription plans between $499 and $999. Customer awareness of the "solution" is my biggest challenge.

If you were in my position, what you consider doing? Remember, the goal is for me to retain my fulltime position and drastically increase sales (2x to 3x). These ideas came to mind:

(1) Hire a consultant to work part-time (20hrs /week) to make cold calls and drive more sales. I estimated for each month the sales person should be able to secure 3 sales, with one going back to his/her compensation for the following month of outbound sales. With this model, I still have the challenge of dealing with customer technical and business questions, which the part-timer would not be able to answer and probably shouldn't focus on.

(2) Partner with another IT business, staffed fulltime, to white label the product and sell it maybe as Private Software as a Service offering. For one business sector, I think they could get 50K - 70K for base and 9k-14k for yearly maintenance. I would take a royalty from each sale and continue working on future product releases.

(3) Give up some ownership of the company for a business partner who can focus on daytime customer needs and sales, and some technical aspects. I'm not sure how much to give up, and would there be enough sales to make this an attractive offer (since still SaaS model). I would continue to focus to future versions and features.

(4) Sell the product to another company to continue it as a SaaS business and ask for royalty for future purchases. My hands would be washed of the product and current customer base.

What would you DO?? Please share your business insights.

Business Model Saas Selling Business

asked Mar 18 '12 at 01:19
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Novice18
18 points
  • Can you tell us how many customers and how much revenue you currently have. – Dave Feyereisen 8 years ago
  • last year with ~30 customers revenues were around 15K... of course, 2012 total revenues would be much higher since i'm acquiring new customers monthly; furthermore, there was an increase in plan prices. For marketing, I only perform search engine marketing, which isn't a significant expensive. – Novice18 8 years ago

2 Answers


1

You have so many good options that it's hard to give you advice. I suggest you read the book E-Myth - because the answer that's best for you will have more to do with want you want to do in life than what's 'best' for someone else.

For instance, if you have a bunch of other ideas and see yourself as a serial entrepreneur, then try to get a royalty (#4) or find a company to partner with (#2).

If you want to bring in people to help you turn this product into a company that you can run then bring in an employee (#1) or give up some ownership to bring in a partner (#3).

HOWEVER, consider a #5...??? Pitch your product AND your EMPLOYMENT to other companies with synergistic products or organizations. Companies often buy smaller companies to add products and technology, but also to gain the brainpower behind them. In this way you can sell for cash, royalty, stock - or any combination thereof.

Our company loves to hear from programmers like you and I'm sure many others would too.

Good luck!!!

answered Mar 18 '12 at 13:35
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Dave Feyereisen
963 points
  • Thanks Dave, I really appreciate your feedback and option #5! Worth exploring... – Novice18 8 years ago
  • You're very welcome. Let me know if you'd like to chat. Maybe we're the buyer/employer you're looking for. We're hiring. Take care. – Dave Feyereisen 8 years ago
  • Thanks Dave. I'm still researching my options but may contact you ;-) – Novice18 8 years ago

1

Here's what I think might happen:

Option 1. This really depends on one important factor: is selling your saas a heavylifting job? Is your sales cycle a long drawn-out battle? If so, I think you'll get this: "I really tried, it's a tough market. Can I get a retainer/advance on the next check? And don't worry about the customer complaint, I got it under control". The problem is that the person has no incentive to grow your business for $20/h while you stand to make some fraction of a gazilion. If on the other hand, the job consists of redirecting people to the website and the site sells itself, then that might be an option.

Option 2. That could work provided you found a really really reliable partner company. If you plan on going down that road, I'd plan to get 2-3 partnerships so that none takes an overwhelming position. That option will take a lot of time, more than you think, because the companies you'll approach will have to make some kind of adjustments to their business in order to distribute yours and selling an executive to make substantial adjustments to his business model is no small sale.

Option 3. That would be probably be the second best option in my opinion. Find a partner who can help you grow the business to the point where you can join full-time later on. Of course, the biggest risk is finding someone who'll do a good job. Big advice from my experience: start with a test period. Draft a vesting schedule that starts AFTER the end of the test period. And don't let personal issues come into play; if they suck, get rid of them asap because they're not going to get better with time and you're going to have a hard time recruiting good people if the person you already have sucks.

Option 4. If you're going to sell, it'll mean that someone will think it's a good buy. Instead of selling 100% and getting a royalty, sell for X% and keep a good ownership position. That option sounds like option 2.

Option 5. Since you have something that's starting to work, why not take a leap of faith?? Growing your business full-time will help you attract employees, partners, investors, customers... You started for a reason; remember why you started. I think this might be the best option. Money's never been an issue or a problem and even when you have none or very little, if you're an entrepreneur, you'll figure things out. If with only seo marketing you've been able to generate a 15K revenue stream then you've got something more valuable than you might think.

answered Mar 19 '12 at 09:27
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Frenchie
4,166 points
  • frenchie, your insights are deep and well thought out. I like the spin on #5. Regarding #1, I would incentivise closing on sales. I figured if someone could make ~ 120 call per week (20hr-week), he or she should be able to land at least three sales, with one going back to him or her for next month along with a bonus. Critical to selling by business or making it attractive is not just the product, but also the customer base. I may try this option for a month or so. Even if the other sales don't close, customer awareness and brand impressions is a plus. Many thanks again for your input!! – Novice18 8 years ago
  • Just another bit of advice, if you're going to try out #1, I'd recommend you try it yourself first, even if it's for a short time. You'll learn a lot about what the sales process will be for your saas and you'll be able to share what you learned with the recruit(s). And good luck with you business! – Frenchie 8 years ago
  • Quick question: what would be your valuation of the company, and what method would you use in the valuation? – Novice18 8 years ago
  • For technology start-ups that have a scalable business model AND that are post-revenue with demonstrated traction, it's usually around 1 Mio. The more capital intensive your operation will be, the lower the valuation and conversely, if you have a very capital efficient growth path, you can claim a stronger valuation. Of course, financially savvy investors will use some multiple of projected cash-flow but overall, their math will land around the 1 Mio mark. In other words, you could probably raise a 250K angel round for around 20% equity. – Frenchie 8 years ago
  • Interesting point. I think I once read that for SaaS it's largely based on 3x-5x multiples of your current, yearly revenue. So, in my case (without the private SaaS offering) it would be approximately 75k - 125k. I should probably ask this question in another thread. Thanks for your many insights. – Novice18 8 years ago
  • For a start-up, we generally use future projected revenue figures, not your current revenue. That's why start-ups get funded pre-revenue and that's why the validation of your financial projections through actual market traction is so important. In the end, for start-ups, the valuation is the result of a negotiation more than of a maths formula. – Frenchie 8 years ago

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