Dan Martell - 5 Areas of Business SaaS Founders Should Master

00:00:00.000 Hi there.

00:00:00.500 I'm Dan Martell, serial entrepreneur, investor,

00:00:02.340 and creator of SAS Academy.

00:00:04.260 And today, I'm going to teach you

00:00:05.260 how to think about your business at a high level

00:00:07.760 so that you can build something incredible.

00:00:09.680 And be sure to stay till the end where

00:00:11.560 I'm going to share you two other video resources

00:00:13.920 to help you go even deeper.

00:00:30.000 So maybe you're new to business or you feel like an imposter

00:00:34.080 in your own company or you can't figure out how to grow

00:00:37.300 the business.

00:00:38.140 In today's video, I'm gonna walk you through exactly the key

00:00:41.420 areas of your business, how to invest in them properly to get

00:00:44.940 them to grow.

00:00:46.040 These are the five steps that you're gonna need to understand

00:00:48.720 to get clarity in your company.

00:00:51.060 Step one, marketing.

00:00:52.660 What does it take to generate a lead for your business?

00:00:55.160 Now I know my first company, MaritimeVacation.ca.

00:00:58.720 Yes, it was a .ca, I'm Canadian.

00:01:01.180 I thought, I'm just gonna build this site

00:01:03.500 for other vacation rental owners to add their listing.

00:01:05.960 This is 97, and I built it.

00:01:08.500 I actually convinced my dad to pay me a bit of money

00:01:10.700 so they covered the server costs,

00:01:12.100 and I actually coded the thing up and launched it,

00:01:14.240 and nobody came running.

00:01:15.980 There wasn't like 50 people that said,

00:01:17.840 oh my god, finally, a way to build,

00:01:20.480 or a way to publish our listing on a website.

00:01:23.080 I mean, at the end of the day,

00:01:25.220 just because you built something

00:01:26.280 doesn't mean anybody's gonna show up.

00:01:27.840 So what marketing is is the mechanism, the process,

00:01:31.180 understanding what it takes to actually generate a lead

00:01:34.480 in your business and that's not a customer.

00:01:35.980 That's just awareness.

00:01:37.580 So what I did is I decided to figure out where do people,

00:01:41.680 like my dad, that's the key is, you know,

00:01:43.480 once you have a target customer, right,

00:01:45.520 because I think of marketing as putting a message in a market.

00:01:48.960 Well, you need to figure out what that message is

00:01:50.560 and who that market is.

00:01:51.900 Once I figured out who that was,

00:01:53.460 people that own cottages or bed and breakfasts,

00:01:55.400 Then I had to ask myself where do those people

00:01:58.000 list themselves, where can I get a directory or a full listing

00:02:00.940 of all those kind of people and I found it in the tourism

00:02:04.180 guide for my province.

00:02:06.140 So what I did is I created a mail merge.

00:02:08.040 Yes, this is back in the day before these companies

00:02:11.980 were even on email and I sent a blast out in the mail,

00:02:16.720 physical mail, direct mail as it's known and asked them if

00:02:20.620 they wanted to be on the internet to just fill out a form

00:02:23.760 and get people to send checks in the mail,

00:02:26.860 or money in the mail.

00:02:27.860 I couldn't believe the fact that people actually did this,

00:02:30.160 but that was the first exposure I had,

00:02:33.300 being somebody that had built stuff before

00:02:35.400 but never really understood the marketing side.

00:02:37.500 The first time I had people show me

00:02:40.240 that if I presented a solution to a pain

00:02:43.140 that was painful enough for them,

00:02:45.080 that they wanted to be part of that,

00:02:46.420 they were willing to throw money in an envelope

00:02:48.980 to a stranger to have their listing created.

00:02:52.080 And I remember the day my dad came home

00:02:54.220 with a handful of envelopes saying,

00:02:55.880 what did you do?

00:02:57.620 Because he couldn't believe,

00:02:58.860 like there was all these messages to me

00:03:00.760 and he's like, I'm opening up

00:03:01.960 and all of a sudden there's cash in those envelopes.

00:03:04.060 And that to me was the first time

00:03:05.260 I ever made a dollar on the internet.

00:03:06.520 So if you have ever launched anything on the internet

00:03:09.160 and made your first dollar,

00:03:10.000 it wasn't from your cousin, your uncle, your best friend,

00:03:12.360 then you've gone pro.

00:03:14.200 And that is the first step,

00:03:15.300 is understanding how do you generate leads?

00:03:18.400 What does it take to generate leads for your business?

00:03:21.540 Step number two, sales.

00:03:23.540 What does it take to turn those leads into customers?

00:03:27.380 What does it take to actually generate a sale?

00:03:30.180 And it's more than just having somebody come to your website

00:03:34.380 and sign up for something or come to your e-commerce site

00:03:36.960 and buy something or walk into your store

00:03:38.760 and purchase whatever's on the shelf.

00:03:41.000 There's a process to selling.

00:03:42.860 There's a process to merchandising,

00:03:45.600 a process to presenting the information,

00:03:47.940 the right way to present it,

00:03:49.660 and actually bring the customer through a journey

00:03:53.100 to the point where they're gonna buy from you.

00:03:55.300 And for me, it was really about,

00:03:57.940 you know, when I built my company, NB Host,

00:04:00.380 it was a hosting company, but I had to go get customers.

00:04:03.240 And one of the sales processes that we needed to figure out

00:04:05.740 was how do we do in-person meetings

00:04:07.980 with small business owners that had websites

00:04:10.280 they were already paying to be hosted

00:04:12.020 and get them to decide to move

00:04:13.680 from their current hosting to with us.

00:04:15.820 So it's not even just about understanding

00:04:17.920 the marketing message and what makes you different

00:04:19.780 and unique and competitive,

00:04:21.360 but it's also the buying process of a potential prospect

00:04:25.160 and what are the things that they need to hear

00:04:27.460 for you to build trust, credibility,

00:04:29.860 proof that you can deliver.

00:04:31.500 Maybe it's reference accounts.

00:04:32.900 There's a bunch of different things

00:04:34.140 that a potential buyer's gonna need to see, hear,

00:04:36.340 and feel for them to feel comfortable

00:04:40.100 moving forward with your company.

00:04:41.640 So that's the second thing,

00:04:43.040 is really figuring out what is the process

00:04:46.320 to convert a lead into a customer,

00:04:48.460 and that's the sales step.

00:04:50.420 Step three is product.

00:04:53.000 What does it take to turn a customer, a new customer,

00:04:57.040 into, my favorite word, a frickin' raven fan?

00:05:01.700 Somebody that is so excited to work with you

00:05:04.140 that they can't help but tell everybody they know,

00:05:06.780 maybe even grabbing them by the arm

00:05:08.600 and walking them into your business.

00:05:10.380 This actually happened to me yesterday

00:05:11.820 when I was talking to a potential customer,

00:05:14.120 and I said, you know, I'm just curious.

00:05:15.480 What did you hear about me?

00:05:16.720 Or things that you saw online, et cetera.

00:05:18.680 And he mentioned, I was talking to Mark.

00:05:20.920 I know he's working with you.

00:05:22.580 And he said some really incredible things

00:05:24.160 and I figured I might as well follow up

00:05:25.420 and see if you can serve me as well.

00:05:27.360 There is nothing better in the world of sales and marketing

00:05:31.020 than getting a warm referral lead.

00:05:33.340 However, that is not a repeatable, scalable process.

00:05:37.500 So what you wanna do in the product side

00:05:39.680 is figure out what can I do to deliver value to my customer.

00:05:43.600 They eventually invest in your product,

00:05:45.240 your solution and they want the value.

00:05:47.740 But the key to turning somebody that's just signed up

00:05:50.980 or become a customer into a raving fan

00:05:52.740 is actually a very detailed and ideally systematic process.

00:05:57.060 In the software world we call that customer success

00:05:59.480 but it's the idea of saying okay, over the next 90 days,

00:06:03.700 what are the activities that we could monitor,

00:06:08.000 ensure our customers receive value on,

00:06:10.300 that we could follow up and ensure

00:06:11.900 that we engage our customer and at the right moment

00:06:15.240 actually ask them for a referral

00:06:17.980 and make that seeded at the beginning

00:06:19.780 in a process that's very deliberate,

00:06:21.820 systematized, and expected.

00:06:23.820 So every time, and this is great about, you know,

00:06:25.820 products that have a freemium and a viral coefficient,

00:06:28.820 you know, they grow virally,

00:06:30.760 or if you have a tool that's on an app store

00:06:33.200 and you wanna get reviews written about it,

00:06:35.400 or if you have an e-commerce company,

00:06:36.660 same thing, you want reviews.

00:06:37.900 There's a way for you to ask successful customers,

00:06:40.840 customers that you've really focused on,

00:06:42.540 gotten results for, created raving fans,

00:06:44.800 to amplify their excitement and energy within your business.

00:06:48.300 And that is such an important step in really understanding how

00:06:51.740 to think about your business, the product side.

00:06:54.240 What do you do, how do you do it, and how do you ensure that

00:06:56.840 every new customer you get gets the value that you promised

00:07:00.280 and then convert that into excitement in the marketplace

00:07:04.060 that drives more customers for your business.

00:07:06.560 Number four, overhead.

00:07:09.020 What does it take to run the business?

00:07:12.160 You know, I think entrepreneurs, when they first start off,

00:07:15.120 they start making sales, right?

00:07:16.640 They might make $100, they might make $1,000,

00:07:19.020 they might make $10,000.

00:07:20.400 And the way they think about it,

00:07:21.520 because if you've come from an employee background

00:07:23.380 or a traditional job, you've always just made money

00:07:26.460 and it was yours to keep.

00:07:27.820 What happens when you have a business

00:07:29.300 is you start to have things like expenses and cost of goods.

00:07:33.720 And really, these are the overhead areas of your business,

00:07:36.440 things like finance, operations, you know, accounting,

00:07:41.060 investing in things that actually don't deliver value

00:07:44.500 to the customers, don't directly have to be associated

00:07:48.900 to a sale, so that's the cost of sale,

00:07:50.940 or you know, improving the product,

00:07:54.380 but it's just part of running the business,

00:07:56.740 the management costs or the overhead.

00:07:58.080 I mean, it's rent, it's, you know, death by SaaS.

00:08:01.180 I don't know if you have any subscription tools

00:08:02.920 and you've got like a hundred of them

00:08:04.680 and every month you write these little checks

00:08:06.920 or they hit your credit card for all these different tools.

00:08:09.780 But at the end of the day, understanding what it costs you

00:08:12.020 to run into the business, that area will help you think more

00:08:16.180 about what's left over after the fact.

00:08:18.520 So as a great entrepreneur, you want to understand the overhead

00:08:22.400 of your business and that's really the fourth step because

00:08:24.700 you know, you might do the other things right.

00:08:26.300 Get leads, convert them into sales and really make sure you

00:08:28.840 create a raving fan through your product but if you don't

00:08:31.500 understand the cost structure of delivering that value,

00:08:34.380 you can actually grow yourself out of business.

00:08:36.880 It sounds crazy but it happens because if your cost

00:08:39.600 to deliver the value.

00:08:41.500 Fully loaded is more than the revenue and the profits

00:08:44.080 that you make than you're upside down in your business.

00:08:46.140 So that's the fourth area you really need to understand

00:08:48.900 to grow an incredible company.

00:08:50.340 The fifth step is profit.

00:08:52.580 Profit is what's left over after you get money

00:08:54.980 from your customer and you deliver the value

00:08:57.720 and kind of cover all your overhead,

00:08:59.360 whatever's left over.

00:09:01.220 And ideally, what you pay yourself a salary.

00:09:03.560 I think one of the biggest challenges

00:09:05.860 that entrepreneurs need to think about,

00:09:07.020 and I was, you know, I made this mistake for a long time,

00:09:09.460 is I didn't pay myself market salary,

00:09:12.460 and I think people almost take it as a badge of honor.

00:09:14.360 You know, I was meeting with the founder the other day,

00:09:17.240 and you know, he ran a business, half a million in revenue,

00:09:20.220 and I was looking at the economics and the overhead,

00:09:23.120 and they were somewhat profitable,

00:09:25.380 around 15% net operating income,

00:09:28.360 and one thing told me that he wasn't,

00:09:30.740 because I could just figure out in my head

00:09:32.140 all the math and the cost and the overhead and the sales,

00:09:34.400 that they weren't paying themselves,

00:09:35.620 and it turned out they were paying themselves

00:09:36.780 28,000 a year, they were two co-founders.

00:09:39.540 And you know, on a half million in revenue,

00:09:42.460 you should be paying yourself at least 60.

00:09:45.460 And if you can't do that, then you really have to

00:09:47.320 investigate the economics and the operating model

00:09:50.020 of the business.

00:09:51.020 So to me, the fifth step is really understanding the profit.

00:09:53.800 What's left over after?

00:09:55.060 What should it be for your industry?

00:09:57.560 And there's a thing called baselining,

00:09:58.940 where you actually can get research on different

00:10:01.440 categories of businesses, figure out which one you fit

00:10:03.700 into and get kind of the blended averages,

00:10:07.040 kind of the low, medium, and high.

00:10:08.940 What's that average for your type of business?

00:10:11.440 Is it 15%, is it 30%?

00:10:13.600 Some businesses, the average, like software,

00:10:16.080 can be as high as 40 and 50% if they're not investing heavily

00:10:19.220 in acquiring new customers.

00:10:21.280 They're high gross margin businesses,

00:10:23.580 which means that if you can operate them efficiently,

00:10:25.720 they leave a lot of profit left over.

00:10:28.500 And the way I think about any business,

00:10:30.700 if you're struggling, if you're frustrated,

00:10:32.960 if you feel like you can't really grow,

00:10:34.960 you gotta go back to profit,

00:10:36.560 because at the end of the day, profit solves all problems.

00:10:39.300 So it's what's left over at the end of the business.

00:10:41.660 I shared that with this entrepreneur

00:10:43.060 that he had to kind of figure out

00:10:44.640 how he could get himself to be paid at least 60,000 a year.

00:10:47.700 And what's awesome is that he automatically went

00:10:51.520 to the products that he could sell

00:10:54.720 at a direct-to-consumer at a higher margin

00:10:57.420 and a higher volume that would hit the bottom line of profit,

00:11:00.660 which means they could take that in the overhead

00:11:02.320 from their salary position and get themselves there.

00:11:04.680 So it's almost like by understanding your numbers

00:11:06.920 relative to the industry, it forces you to get to a place

00:11:11.120 where you start making decisions to drive towards that

00:11:14.440 versus just thinking that's the norm

00:11:16.300 and that's what I'm supposed to do

00:11:17.460 and I'm just starting off.

00:11:18.600 But when a company's been in business for five years

00:11:20.580 and you're paying yourself $28,000 a year,

00:11:22.280 there's something fundamentally wrong about the business.

00:11:25.340 So those are the five key areas of the business.

00:11:27.340 Marketing, what does it take to generate a lead?

00:11:30.180 Sales, what does it take to convert that lead into a

00:11:33.280 customer product?

00:11:35.080 How do I take a customer and turn them into a raving fan?

00:11:38.380 Four, overhead, what does it cost me to run this business?

00:11:42.600 And then finally, five is profit.

00:11:45.220 What's left over to allow me to actually prove that I've

00:11:48.460 created an economic engine?

00:11:50.460 As I mentioned at the beginning, I want to share two

00:11:52.460 other video resources to help you go even deeper.

00:11:55.240 The first one is a video I did on CrossFit for business.

00:11:58.600 If you don't know this about me,

00:11:59.740 I definitely like to CrossFit.

00:12:01.100 I'm one of those guys that can't shut up about it.

00:12:03.380 I just love it and I decided one day to kind of reverse

00:12:06.640 engineer the training methodology and how CrossFit works

00:12:09.780 which things like compete every day and skills and drills

00:12:13.220 and say what would the equivalent be for business.

00:12:15.320 So I have a video on that link below that you can check out

00:12:17.620 and the second thing is if you want to nerd out a bit more

00:12:20.900 on the financial models, we talked about it lightly.

00:12:23.740 I actually have a training that I did at my Idea to Exit live

00:12:27.660 event called the Five Financial Models.

00:12:29.720 It's a private video shared exclusively for you,

00:12:31.940 so click below, check that out.

00:12:33.660 If you like this video, be sure to click the like button below,

00:12:36.200 share it with your friends, and be sure to subscribe.

00:12:38.480 As per usual, I wanna challenge you to live a bigger life

00:12:40.680 and a bigger business.

00:12:41.740 Thanks for watchin', and I'll see you in the next video.

Dan Martell - January 22, 2018

5 Areas of Business SaaS Founders Should Master

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