Every entrepreneur, board member and key stakeholders want to have a close pulse on the progress of their business. Revenue and profitability growth has been the most common measure used to track how well a business is doing.
However, these are lagging indicators which is apparent only after a significant shift has taken place. While they can confirm trends, they do not help predict. Also, if something is not right, it can take a long time for the lagging indicators to tell us that.
The learning from working with 45+ Value SaaS startups in our accelerator is that for a SaaS startup, revenue growth is a good indicator only when the startup has covered its business basics and is able to generate predictable & increasing revenue growth every month. If not, one is left guessing if the business is making “invisible” progress or not. In addition, if a SaaS startup is spending too much $$$ to acquire customers in an uneconomical way (a trap that most non Value SaaS startups fall into), the revenue growth could be a misleading indicator of business progress.
What we need are leading indicators to predict, control and steer SaaS businesses.
How is your Saas business doing?
While monthly recurring revenues (MRR), Churn, Cost of Acquiring Customers (CAC), customer Lifetime Value (LTV), Average Revenue Per Customer, Lead Velocity and Sales Pipeline are very useful indicators of a SaaS business, we realised that in addition, a new way of measuring business progress is required as business progress is never a straight line or an exponential curve It is a series of zigzag steps or series of S curves with points of stagnation, followed by growth and again some stagnation.
When SaaS businesses are in the stagnation phase of the curve, we ask the very important question - what inflection point do they have to reach for the next phase of growth?
A typical early stage SaaS company revenue growth curve, from one of our startups that grew from $200K ARR to $1.5+ Million ARR looks like this (x axis timeline, y-axis is monthly recurring revenues in $s, and illustrates it is not a straight or exponential curve):
Points in the business when lagging indicators (like revenues) and even some leading indicators (such as sales pipeline & lead velocity) will suddenly see a positive shift. It is similar to changing gears in the car that allows you to gain more speed. In business, an inflection point refers to a key event that changes the trajectory of the business. Inflection points are more significant than the small day to day progress typically made by the startup.
One such inflection point in a part of the S curve:
It is important to note that if the desired inflection point is not reached, the business can decline, not just stagnate.
Industry first “Inflection Point” based measure in SaaS
As an industry first in SaaS, after reviewing progress of 45+ startups in our accelerator, my partners and I at Upekkha, identified a list of such events that changes the trajectory of the business, and reflects in the change from stagnation to growth and increased monthly net new MRR.
Not only is it a good toolset to predict & measure progress, these inflection points give SaaS entrepreneurs extreme clarity on what needs to be achieved to get to the next phase of growth. By achieving a series of such inflection points, the startup moves higher in the maturity stage of the business and is able to make investments wisely for predictable revenue growth, and a viable/profitable growth model.
Key inflection points we track
These are the 14 high impact inflection points that we track.
Understanding the impact of these inflection points (eg. impact of gameplay clarity through Wardley maps; check out the fascinating concepts of Wardley maps by Simon Wardley in this video "Crossing the river feeling the stones" https://youtu.be/2IW9L1uNMCs?t=7), based on different business play books and how these change the trajectory of the business, and the time and resources it takes various startups to reach the inflection points is Upekkha's secret sauce. As we uncover more impactful events in our startups, both positive and negative, we will add them to our set of inflection points and continue to track and analyse.
These inflection points can be mapped to the components of the SaaS flywheel and also mapped based on the maturity stage of the startups. Based on the playbook of each business, certain inflection points have greater impact than others. In other words, all inflection points are not equal. As an example, Problem Value Fit / A high value problem is important for everyone, and having land/expand working is more critical to enterprise SaaS startups than SMB SaaS startups.
One of our cohort startup journey to $1+ Million ARR through several inflection points (inflection points & terminologies have evolved over time):
By tracking the time and resources that each startup takes to get to certain inflection points, we can understand patterns of how & why some startups do better than others, and in the future give additional insights to startup founders on these patterns of success vs failures.
In short, the “inflection points” based measure opens up significant possibilities for Upekkha startup founders to fine tune business proactively and get to their goals faster and cash efficiently. Being able to see ahead, gives startup founders the opportunity to avoid unpleasant surprises and to prepare for growth at the right time.
As the number of startups in the Upekkha Tribe continues to grow, our Inflection Point based predictor engine will evolve to be more robust and more accurate, and our Value SaaS startups will benefit with higher chances of success!
Thanks to my partner Rajan for reviewing and providing his comments.