Dan Martell - How to Fix a Broken Business Model in Your SaaS Startup

00:00:00.000 Hi there.

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

00:00:02.340 and creator of SaaS Academy.

00:00:03.880 In this video, I'm going to share with you

00:00:05.540 how to fix a broken business model in your SaaS business

00:00:10.380 so that you can get back on track and scale your company.

00:00:13.600 And be sure to share this day right to the end,

00:00:16.080 where I'm going to share an exclusive resource called

00:00:17.760 the Precision Scorecard to help you measure

00:00:19.760 your progress along the way.

00:00:30.000 When you build your startup, it can be frustrating because you're

00:00:36.500 trying to make things work but you're also dealing with a ton

00:00:39.440 of challenges around marketing and sales costs and just getting

00:00:42.840 the product built in the first place.

00:00:44.240 You know, recently I was on a growth session with a founder

00:00:47.040 seeing if there was an opportunity for me to support

00:00:48.880 them and coach them forward and we, you know, we walk through

00:00:52.520 the process I have which is results, reality and roadblocks

00:00:56.800 And as I was going through kind of some of the core metrics

00:00:59.540 that I wanted to kind of review to make sure that their business

00:01:03.400 had challenges that I could solve,

00:01:05.480 it became very apparent to me quickly

00:01:07.240 that they were running into a wall in the next few months.

00:01:10.320 I even asked them, I said, how much runway do you have left?

00:01:12.580 And they're like, three months.

00:01:13.860 And I'm like, dude, if you don't fix these challenges,

00:01:16.480 when you have a 25% monthly churn and your CAC that you say

00:01:22.060 is $1,500 on a $3,000 annual contract value is actually twice

00:01:27.900 that amount because what you're not considering is the heavy

00:01:30.960 upfront investment in the setup and the data migration

00:01:33.500 for your solution.

00:01:34.840 That number's more like $2,500.

00:01:36.840 Your business is not economically,

00:01:40.040 the unit economics are not strong.

00:01:42.240 And the reason why they kept pushing on sales,

00:01:44.840 pushing on marketing, investing in top of funnel,

00:01:47.160 investing in salespeople, they had a team of 20 some folks.

00:01:50.580 I was like, this is not gonna work out and at the end of the

00:01:54.120 day, I can't coach you because A, that's not where you should be

00:01:57.420 investing your capital and B, you've got some fundamental

00:02:00.760 flaws in the model that needs to be fixed for you to even be

00:02:04.260 successful and I know that you're trying to raise your next

00:02:06.200 round of funding but that, just trying to double down on growth

00:02:10.060 for growth's sake is not gonna get you to where you need to be.

00:02:12.900 So what I wanna share with you are the six steps that I would

00:02:16.980 have given to Harry had I coached him to turn the

00:02:20.660 business around that unfortunately I just don't think

00:02:23.620 he was open to receiving on that call.

00:02:25.920 So here they are.

00:02:27.100 Number one, baseline your metrics.

00:02:29.900 The first thing you need to do is what I did on the call which

00:02:32.600 is get clear on what your numbers look like.

00:02:35.860 And if you've got a 25% monthly churn,

00:02:38.660 that means within three and a bit months you're churning

00:02:41.680 through 100% of your customers so just for you to go sideways

00:02:45.740 You need to replenish 100% of your current customers

00:02:49.220 every three to four months.

00:02:50.580 So talk about that plus trying to grow.

00:02:53.240 It's just crazy.

00:02:54.580 So understanding truly your baseline metrics,

00:02:57.260 understanding your real cost-acquired customer

00:03:00.520 and your real lifetime value of a customer, et cetera.

00:03:02.920 Even though your annual contract value might have been high,

00:03:06.060 if you're churning after three months,

00:03:07.360 your lifetime value is nothing.

00:03:09.640 So that, to me, is the first thing,

00:03:11.100 is just wherever you're at in your business,

00:03:13.460 if you're struggling, just stop and do an assessment of where

00:03:17.000 you're at so that you understand what you've got to work with.

00:03:19.800 Number two, cut expenses.

00:03:22.260 This is not a popular action item but it is mandatory.

00:03:26.380 I've gone through many pivots and iterations in my businesses

00:03:30.380 over the years where there were moments where we had to cut

00:03:33.280 our expenses, cut our team down.

00:03:35.080 Now I always say cut the meat off but don't cut the bone

00:03:38.180 because you've got your core that you need to actually

00:03:40.460 rebuild from but there's so many areas of a business that are

00:03:44.800 people are being wasteful or they're still paying for

00:03:47.300 subscription software that they're not using or they've

00:03:49.760 got people on their team that are not productive or not needed

00:03:52.640 and you just need to go deep and cut the expenses.

00:03:55.240 And I know, optics, it looks bad from a narrative point of view.

00:03:59.980 If you're in a fundraising process, you know, contracting

00:04:04.720 your team is not the thing that's gonna look good to other

00:04:08.160 investors but the truth is you gotta be around to have that

00:04:11.100 fight, you gotta stick around long enough to fight another day

00:04:14.740 and if you don't cut your expenses then the decision of

00:04:17.940 you raising another round or surviving is not yours to be had,

00:04:21.740 the bank account will make it for you.

00:04:23.500 So number two, you just gotta cut your expenses right down

00:04:26.020 to the bone.

00:04:26.920 Number three, correct churn.

00:04:29.480 It doesn't matter what you want for a growth rate.

00:04:32.280 If your customers are leaving just as fast,

00:04:34.980 that is a horrible business to be in and I would have took an

00:04:38.160 all of the resources that Harry had

00:04:40.060 and focus 100% on customer churn.

00:04:43.160 I wouldn't have accepted a customer cancelling.

00:04:45.560 I would wanna know what we went wrong.

00:04:47.300 Where did we miss the mark?

00:04:48.740 What was the promise and what did we deliver?

00:04:51.200 And how did we miss that opportunity to keep

00:04:53.840 and create a keep a customer?

00:04:54.980 Because if people are leaving,

00:04:56.680 then there is some fundamental problems in your product

00:05:00.320 that needs to be resolved and that's an all hands on deck.

00:05:04.520 Look at the data, look at the situation

00:05:06.680 and get that fixed because without that,

00:05:09.220 it doesn't matter how much cool marketing you're going to do

00:05:11.720 or how much money you think you're going to go raise.

00:05:13.660 A sophisticated investor is going to see that number

00:05:15.860 and run away from you.

00:05:17.260 Number four, nail positioning. 0.94

00:05:19.860 Typically in these scenarios where the product is not really

00:05:23.300 meeting the mark and you've got high churn

00:05:25.900 and you're trying to grow but you're kind of plateaued,

00:05:28.100 it's because you haven't really nailed a niche.

00:05:30.400 You haven't focused on a core customer segment.

00:05:33.600 So what I want to highly recommend is that you find a

00:05:36.900 position for your product in a market segment that you can be

00:05:40.100 competitive against and the way I think about it is on one axis

00:05:43.680 you have unmet needs so you want a market that's got a high

00:05:46.320 unmet need for the problem or the solution that you solve in

00:05:48.580 that problem space and then the other one is quick to buy,

00:05:51.660 right, if you're trying to grow the business,

00:05:53.560 grow the revenue, you want to solve a problem for something

00:05:56.660 that people know they have that they don't feel like they have

00:05:58.700 a solution in the market and then also get paid accordingly

00:06:03.100 fast enough so that you're not looking at 16 months sales

00:06:06.780 cycle if you've only got three months of runway left.

00:06:08.740 So those are kind of the two accesses that you want to focus

00:06:11.340 on to really perfect and nail your positioning.

00:06:14.680 Number five, perfect pricing.

00:06:17.540 To me, I think there's too many entrepreneurs that are leaving

00:06:20.620 money on the table and when I say perfect pricing,

00:06:23.020 it's not only about your product.

00:06:24.620 It's not about what you're charging for a plan or some add

00:06:27.620 on modules or whatever.

00:06:29.060 It's really looking holistically and saying, look,

00:06:31.200 we need to make revenue.

00:06:32.700 And if that means maybe bolting on some done-for-you services

00:06:36.480 to increase our ability to extend our runway,

00:06:40.300 then that's just what you do.

00:06:41.640 I think so often these product purist founders get so

00:06:47.140 in their head about like, it's gotta be the product,

00:06:49.080 it's gotta be the product and they shy away from services.

00:06:53.020 Most of the clients that I coach,

00:06:54.380 they're bootstrapped founders in middle America,

00:06:57.900 flyover states that have just built incredible businesses.

00:07:01.800 By doing whatever it took and I think that if you're in a

00:07:05.200 position where you need to fix your business model and getting

00:07:08.480 some extra revenue from done for you services aligned with the

00:07:12.480 problem that you solve, then to me that just makes sense.

00:07:15.080 So perfect your pricing is not only making sure your pricing

00:07:18.280 is competitive and you've got enough gross margin in your

00:07:20.820 software to continue to invest in growing but that you look for

00:07:24.320 opportunities to expand that revenue through done for you

00:07:27.760 services or other partnerships that can increase your total

00:07:31.120 MRR, your monthly reoccurring revenue.

00:07:33.420 Number six, ramp up partners.

00:07:35.960 One of the most cost effective ways for you to get distribution

00:07:39.300 is through partnerships.

00:07:40.300 Why?

00:07:41.100 Because they subsidize your cost acquired customer

00:07:43.860 by them leveraging their distribution, their audience,

00:07:47.140 their customers to bring you new customers.

00:07:50.340 So yes, you might have to give up a percentage

00:07:52.540 of the reoccurring revenue to those partners,

00:07:54.920 but they'll get you introduced to dozens if not hundreds

00:07:58.280 of customers at the same time.

00:07:59.840 And when I look at things like, you know,

00:08:02.100 publishing content for SEO or running paid acquisition,

00:08:05.440 which costs a lot of money, you know,

00:08:07.980 to other things you could do from a product, you know,

00:08:10.220 freemium or splintering off a solution to do kind of some

00:08:13.220 like free lead gen tool like a browser extension, et cetera.

00:08:17.120 Partners is probably the most effective to go quick so that

00:08:21.400 you can get deals done faster.

00:08:22.960 So one partner might take you a couple months to secure and

00:08:25.960 promote but they could bring you hundreds of customers.

00:08:28.360 So I would, if I was trying to ramp up revenue very fast,

00:08:32.100 I would find one or two incredible partners

00:08:34.340 and I would use a partner profile,

00:08:35.800 so making sure that they have an email list,

00:08:37.860 that they align with our values,

00:08:39.300 that they share the same customer segment as we're serving

00:08:42.940 and go after them in an aggressive way

00:08:45.120 to just make sure that they get the message out there

00:08:47.180 because those sales will help invest

00:08:49.680 and solve the business as it is today

00:08:51.180 so it gives you more time to figure things out

00:08:54.020 over the long term.

00:08:55.180 So six steps to fix a broken SaaS model.

00:08:58.260 Number one, baseline your metrics so you know honestly

00:09:01.660 where you're at.

00:09:02.460 Number two, cut expenses.

00:09:04.160 Get rid of all the fat and cut rate down to the bone.

00:09:07.800 Number three, correct your churn so that every customer

00:09:10.760 you are getting today and into the future,

00:09:13.060 you're keeping them.

00:09:14.340 So do everything you can to do that.

00:09:16.060 Number four, nail your positioning.

00:09:18.100 Be differentiated and unique in a market.

00:09:20.900 Nail your niche.

00:09:21.780 Number five, perfect pricing so that you're generating

00:09:24.980 enough revenue per customer engagement.

00:09:27.680 And number six, ramp up your partners because they are an

00:09:30.380 efficient way to get distribution for your product.

00:09:34.020 As I mentioned in this video, I want to share with you an

00:09:35.960 exclusive resource called the Precision Scorecard.

00:09:38.920 This is my structure on a weekly basis.

00:09:41.120 I have my weekly sync and I use my scorecard to make sure that my

00:09:44.300 whole team is aligned.

00:09:45.440 So if you're trying to fix a broken SaaS business, you're

00:09:48.600 going to want to download this resource.

00:09:50.400 You can click the link below to get your copy.

00:09:52.800 In it, I share the format and the funnel structure that I use to

00:09:56.900 make sure that we map all key metrics in our business.

00:09:59.500 And I even include two different lists of metrics below a million

00:10:02.880 in annual recurring run rate and above a million for you to kind

00:10:06.740 of grab and add to that worksheet for you to build out

00:10:10.020 your scorecard yourself.

00:10:11.720 And if you like this video, be sure to click that like button.

00:10:14.580 Subscribe to my channel.

00:10:15.720 If there's anybody you care about that you think I can serve,

00:10:18.020 feel free to share this video with them directly.

00:10:20.160 And as per usual, I want to challenge you to live a bigger

00:10:22.260 life and a bigger business and I'll see you next Monday.

00:10:26.260 We got a break, it's like a broken.

00:10:29.260 What do we got that's broken?

Dan Martell - February 18, 2019

How to Fix a Broken Business Model in Your SaaS Startup

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