How to Fix a Broken Business Model in Your SaaS Startup


– Hi there, I’m Dan Martell. Serial entrepreneur, investor
and creator of SaaS Academy. This video I’m gonna share with
you how to fix a broken (mimics airhorn) broken business
model in your SaaS business so that you can get back on
track and scale your company and be sure to stay right to
the end where I’m gonna share an exclusive resource called
the Precision Scorecard to help you measure
your progress along the way. (upbeat music) When you build your startup it
can be frustrating ’cause you’re trying to make things work but
you’re also dealing with a ton of challenges around marketing
and sales costs and just getting the product built
in the first place. You know, recently I was on a
growth session with a founder seeing if there was an
opportunity for me to support them and coach them forward. And we, you know, we walked
through the process I have which is results,
reality and roadblocks. And as I was going through kinda
some of the core metrics that I want to kind of review to make
sure that their business had challenges that I could solve,
it became very apparent to me quickly that they
were running into a wall in the next few months. I even asked him, I said, “How
much runway do you have left?” And they’re like,
“Three months.” And I’m like, “Dude, if you
don’t fix these challenges, “when you have
a 25% monthly churn “and your CAC that
you say is $1500 “on a $3,000 annual
contract value is actually twice “that amount because what you’re
not considering is the heavy “upfront investment in the set
up and the data migration for “your solution, that
number’s more like $2500. “You’re business
is not economically, “the unit economics
are not strong.” And the reason why
they kept pushing on sales, pushing on marketing,
investing in top of funnel, investing in salespeople. They had a team
of 20-some folks. I was like, “This
is not gonna work out. “And at the end of the day,
I can’t coach you because “A) that’s not where your should
be investing your capital and “B) you’ve got some fundamental
flaws in the model that needs to “be fixed for you
to even be successful. “And I know that you’re trying
to raise your next round of “funding but that, just trying
to double down on growth for “growth’s sake is not gonna get
you to where you need to be.” So what I want to share with you
are the six steps that I would have given to Harry had I
coached him to turn the business around that unfortunately
I just don’t think he was open to receiving on that
call so here they are. Number one,
baseline your metrics. The first thing you need to do
is what I did on the call which is get clear on what your
numbers look like and if you’ve got a 25% monthly churn that
means within three and a bit months you’re churning through
100 percent of your customer so just for you to go sideways you
need to replenish 100 percent of your current customers
every three to four months. So talk about that
plus trying to grow. It’s just crazy. So understanding
truly your baseline metrics, understanding your real
cost to acquire a customer and your real lifetime value
of a customer, et cetera. Even though your annual contract
value might have been high. If you’re churning
after three months your lifetime value is nothing. So that to me is the first thing
is just wherever you’re at in your business,
if you’re struggling, just stop and do an assessment
of where you’re at so that you understand what
you’ve got to work with. Number two, cut expenses. This is not a popular
action item but it is mandatory. I’ve gone through many pivots
and iterations in my businesses over the years where there were
moments where we had to cut our expenses, cut our team down. Now I always say cut the
meat off but don’t cut the bone because you’ve got
your core that you need to actually rebuild from. But there are so many areas of
a business that are people are being wasteful or they’re still
paying for subscription software that they’re not using or
they’ve got people on their team that are not
productive or not needed. And you just need to go deep
and cut the expenses and I know, optics, it looks bad. From a narrative point of
view, if you’re in a fundraising process, you know, contracting your
team is not the thing that’s going to look good to
other investors but the truth is is you got to be
around to have that fight. You’ve got to stick around long
enough to fight another day. And if you don’t cut your
expenses then the decision of you raising another round or surviving is not
yours to be had. The bank account
will make it for you. So number two, you’ve just
got to cut your expenses right down to the bone. Number three, correct churn. It doesn’t matter what
you want for a growth rate if your customers are
leaving just as fast that is a horrible
business to be in. And I would have took in all of
the resources that Harry had and focus 100% on customer churn. I wouldn’t of
accepted a customer canceling. I would want to
know what went wrong, where did we miss the mark. What was the promise and what
did we deliver and how did we miss that opportunity to create
and keep a customer because if people are leavin’ then there
is some fundamental problems in your product that
needs to be resolved. And that’s an all hands on deck. Look at the data. Look at the situation and get
that fixed because without that it doesn’t matter how much
cool marketing you’re gonna do or how much money you
think you’re going to go raise, a sophisticated investor is
gonna see that number and run away from you. Number four, nail positioning. Typically in these scenarios
where the product is not really meeting the mark and you’ve got
high churn and you’re trying to grow but you’re kind of
plateaued it’s because you haven’t really nailed a niche. You haven’t focused on a core
customer segment so what I would highly recommend is that you
find a position for your product in a market segment that you
can be competitive against. And the way I think about it is
on one axis you have unmet needs so you want a market that’s
got a high unmet need for the problem or the solution that
you solve in that problem space. And then the other
one is quick to buy. Right? If you’re trying
to grow the business, grow the revenue you want to
solve a problem for something that people know they have that
they don’t feel like they have a solution in the market and then
also get paid accordingly and fast enough so that you’re not
looking at 16 month sales cycle if you’ve only got 3
months of runway left. So those are kind of the two
axises that you want to focus on to really perfect and
nail your positioning. Number five, perfect pricing. To me, I think there’s too many
entrepreneurs that are leaving money on the table. And when I say
perfect pricing it’s not only
about your product. It’s not about what you’re
charging for a plan or some add-on modules or whatever. It’s really looking holistically and saying look we
need to make revenue. And if that means maybe bolting
on some done-for-you services to increase our ability to
extend our runway then that’s just what you do. I think so often these product
purist founders get so in their head about like
it’s got to be the product, it’s got to be the product and
they shy away from services. You know, most of the
clients that I coach they’re bootstrapped
founders in middle America. You know, flyover states
that have just built incredible businesses by
doing whatever it took. And I think that if you’re in a
position where you need to fix your business model and
getting some extra revenue from done-for-you services aligned
with the problem that you solve then, to me,
that just makes sense. So perfect your pricing is not
only making sure your pricing is competitive and you’ve got
enough gross margin in your software to continue to invest
in growing but that you look for opportunities to expand that
revenue through done-for-you services or other partnerships
that can increase your total MRR, your monthly
reoccurring revenue. Number six, ramp up partners. One of the most cost effective
ways for you to get distribution is through partnerships. Why? Because they subsidize your
costs to acquire a customer by them leveraging
their distribution, their audience, their customers
to bring you new customers. So yes, you might have to
give up a percentage of the reoccurring revenue to those
partners but they’ll get you introduced to dozens
if not hundreds of customers at the same time. And when I look at
things like, you know, publishing content for SEO or
running paid acquisition which costs a lot of money, you know,
to other things you could do from a product, you know,
freemium or splintering off a solution to do kind of some
like free lead gen tool like a browser extension, et cetera,
partners is probably the most effective to go quick so that
you can get deals done faster. So one partner might take you
a couple months to secure and promote but they could bring
you hundreds of customers. So I would if I was trying
to ramp up revenue very fast, I would find one or two
incredible partners and I would use a partner profile so
making sure that they have an email list, that they
align with our values, that they share the same
customer segment as we’re serving and go after them in an
aggressive way to just make sure that they get the message out
there because those sales will help invest and solve the
business as it is today so it gives you more time to figure
things out over the long term. So six steps to fix
a broken SaaS model. Number one, baseline
your metrics so you know honestly where you’re at. Number two, cut expenses. Get rid of all the fat and
cut right down to the bone. Number three, correct your churn
so that every customer you are getting today and into the
future you’re keeping them. So do everything
you can to do that. Number four, nail your
positioning be differentiated and unique in a market.
Nail your niche. Number five, perfect pricing so
that you’re generating enough revenue per customer engagement. And Number six, ramp up your
partners ’cause they are an efficient way to get
distribution for your product. As I mentioned at
beginning of this video, I want to share with you an
exclusive resource called the Precision Scorecard. This is my structure
on a weekly basis. I have my Weekly Sync and I use
my scorecard to make sure that my whole team is aligned. So if you’re trying to
fix a broken SaaS business, you’re gonna want to
download this resource. You can click the link
below to get your copy. In it I share the format and the
funnel structure that I use to make sure that we map all
key metrics in our business. And I even include two different
list of metrics below a million in annual reoccurring run rate
and above a million for you to kind of grab and add to that
worksheet for you to build out your scorecard yourself. And if you’ll like this video, be sure to click
that Like button. Subscribe to my channel. If there’s anybody you care
about that you think I can serve, feel free to share
this video with them directly. And as per usual, I want to
challenge you to live a bigger life and a bigger business
and I’ll see you next Monday. – [Jaret] Sweet. – [Dan] So now I get to break,
it’s like a broken. What do we go that’s broken?

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4 thoughts on “How to Fix a Broken Business Model in Your SaaS Startup

  1. Every SaaS founder needs an “emergency survival plan”. In this week’s video I cover 6 ways to fix a broken SaaS model and live to code another day 😉

  2. Great Video Dan.. What's your view on the SaaS conferences like SaaStr, Web submit, Rise, etc. Is it worthy to invest in these ?

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