One of the biggest mistakes entrepreneur and VC veteran David Skok sees software as a service (SaaS) startups make is trying to “buy their way into a repeatable, scalable model.” Sure, investing in hiring more sales reps will naturally result in more customer acquisitions. However, more sales reps is not synonymous with profitability.
In this week’s Labcast, Skok, author of the popular For Entrepreneurs blog, explains why you need to make sure you have a sustainable go-to-market sales model in place before expanding you team. Listen in to learn the metrics to use for measuring the profitability of your model and the goals you should be setting for your sales funnel.
This Week’s Guest
“Ask yourself the following question: Is the lifetime value of your customer more than 3x greater than the cost to acquire that customer? If you’re in that greater-than-3x range, you have a viable business model and one that you should feel confident hitting the accelerator pedal on and expanding.”
— David Skok, Matrix Partners
Key Takeaways
Startups can be broken up into three phases:
* Search for product market fit. [1:10]
* Search for a repeatable, scalable, and profitable economic model. [1:25]
* Expanding your business. [2:40]
There are two important metrics for measuring the profitability of your go-to-market sales model:
* Lifetime value to cost of customer acquisition. [3:30]
* Number of months it takes to recover cost of customer acquisition. [10:35]
When examining the sales funnel, measure the conversion rate from visitors to leads, to opportunities, to closed deals. Over time, also measure your number of visitors. [14:35]
Conversion rates vary from company to company. Generally speaking, if you’re implementing free trials, aim for a 10-20% conversion rate. On the flip side, if you have a heavily-invested sales proccess, aim for a 80-85% conversion rate. [12:55]
Listen Here
Labcast 118: David Skok Helps You Determine if Your Go-to-Market Economic Model is Viable
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Transcript
Kevin: Hello, and welcome to this edition of Labcast. I’m your host, Kevin Cain, and today I’m joined by David Skok to talk about the viability of go-to-market economic models. For those of you who don’t know David, he’s a general partner at Matrix Partners, a venture-capital firm in Massachusetts that has invested in such companies as Apple Computer, Veritas, Sycamore Networks and Guild Group. David has a wealth of experience running companies, having started his first in 1977 at the age of 22. Since then, he’s founded a total of four separate companies, three of which have gone public. Hey, David, welcome to Labcast. How’s it going today?
David: It’s great. And yourself?
Kevin: I’m doing very well, thank you. As I mentioned in my introduction, we’re going to be talking today about economic models and go-to-market economic models and whether or not they’re viable. My first question before we even get to that is, if we think about start-ups and the different stages of start-ups, what exactly are you going to see as those stages and how does that break down?
David: I think of a start-up in three phases. The first one would be the search for product market fit, which is really well talked about with this whole lean start-up philosophy. The second and third, I think, are slightly less well understood and less well talked about, so that’s where we’ll spend a bit of time today.
The second one I think of as being the search for a repeatable, scalable, and profitable sales model.
