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How our SaaS startup improved net revenue retention by more than 30 points in two quarters
There’s certainly no shortage of SaaS performance metrics leaders focus on. While all SaaS companies do, and must, home in on acquisition metrics, there’s also massive revenue potential within your current customer base.
I think NRR (net revenue retention) is without question the most underrated metric out there. NRR is simply total revenue minus any revenue churn plus any revenue expansion from upgrades, cross-sells or upsells. The greater the NRR, the quicker companies can scale. Simply put: the power of compound math!
One of the biggest and most impactful changes we made was to move new business, retention and account management all under our chief revenue officer.
Over the course of two quarters, Terminus grew its NRR by more than 30 points, opening up incredible new levels of growth opportunities.
To boost our NRR for the better, I focused on three core pillars within our organization.
People
We took a holistic look at the organization and our org structure. One of the biggest and most impactful changes we made was to move new business, retention and account management all under our chief revenue officer. At the end of the day, it just makes a ton of sense to have acquisition and retention living under the same roof — why bother acquiring new customers if you can’t retain them?
We also rolled out a surround-sound team (around three or four people per customer) who onboard and help customers with their account from day one. In total, we have about a quarter of our company dedicated to this 24/7 support and hands-on guidance to ensure we’re enabling customers immediately.
Process
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It’s time to abandon business intelligence tools
Organizations spend ungodly amounts of money — millions of dollars — on business intelligence (BI) tools. Yet, adoption rates are still below 30%. Why is this the case? Because BI has failed businesses.
Logi Analytics’ 2021 State of Analytics: Why Users Demand Better survey showed that knowledge workers spend more than five hours a day in analytics, and more than 99% consider analytics very to extremely valuable when making critical decisions. Unfortunately, many are dissatisfied with their current tools due to the loss of productivity, multiple “sources of truth,” and the lack of integration with their current tools and systems.
A gap exists between the functionalities provided by current BI and data discovery tools and what users want and need.
Throughout my career, I’ve spoken with many executives who wonder why BI continues to fail them, especially when data discovery tools like Qlik and Tableau have gained such momentum. The reality is, these tools are great for a very limited set of use cases among a limited audience of users — and the adoption rates reflect that reality.
Data discovery applications allow analysts to link with data sources and perform self-service analysis, but still come with major pitfalls. Lack of self-service customization, the inability to integrate into workflows with other applications, and an overall lack of flexibility seriously impacts the ability for most users (who aren’t data analysts) to derive meaningful information from these tools.
BI platforms and data discovery applications are supposed to launch insight into action, informing decisions at every level of the organization. But many are instead left with costly investments that actually create inefficiencies, hinder workflows and exclude the vast majority of employees who could benefit from those operational insights. Now that’s what I like to call a lack of ROI.
Business leaders across a variety of industries — including “legacy” sectors like manufacturing, healthcare and financial services — are demanding better and, in my opinion, they should have gotten it long ago.
It’s time to abandon BI — at least as we currently know it.
Here’s what I’ve learned over the years about why traditional BI platforms and newer tools like data discovery applications fail and what I’ve gathered from companies that moved away from them.
The inefficiency breakdown is killing your company
Traditional BI platforms and data discovery applications require users to exit their workflow to attempt data collection. And, as you can guess, stalling teams in the middle of their workflow creates massive inefficiencies. Instead of having the data you need to make a decision readily available to you, instead, you have to exit the application, enter another application, secure the data and then reenter the original application.
According to the 2021 State of Analytics report, 99% of knowledge workers had to spend additional time searching for information they couldn’t easily locate in their analytics solution.
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Winning enterprise sales teams know how to persuade the Chief Objection Officer
Many enterprise software startups at some point have faced the invisible wall. For months, your sales team has done everything right. They’ve met with a prospect several times, provided them with demos, free trials, documentation and references, and perhaps even signed a provisional contract.
The stars are all aligned and then, suddenly, the deal falls apart. Someone has put the kibosh on the entire project. Who is this deal-blocker and what can software companies do to identify, support and convince this person to move forward with a contract?
I call this person the Chief Objection Officer.
Who is this deal-blocker and what can software companies do to identify, support and convince this person to move forward with a contract?
Most software companies spend a lot of time and effort identifying their potential buyers and champions within an organization. They build personas and do targeted marketing to these individuals and then fine-tune their products to meet their needs. These targets may be VPs of engineering, data leaders, CTOs, CISOs, CMOs or anyone else with decision-making authority. But what most software companies neglect to do during this exploratory phase is to identify the person who may block the entire deal.
This person is the anti-champion with the power to scuttle a potential partnership. Like your potential deal-makers, these deal-breakers can have any title with decision-making power. Chief Objection Officers aren’t simply potential buyers who end up deciding your product is not the right fit, but are instead blockers-in-chief who can make departmentwide or companywide decisions. Thus, it’s critical for software companies to identify the Chief Objection Officers that might block deals and, then, address their concerns.
So how do you identify the Chief Objection Officer? The trick is to figure out the main pain points that arise for companies when considering deploying your solution, and then walk backward to figure out which person these challenges impact the most. Here are some common pain points that your potential customers may face when considering your product.
Change is hard. Never underestimate the power of the status quo. Does implementing your product in one part of an organization, such as IT, force another department, such as HR, to change how they do their daily jobs?
Think about which leaders will be most reluctant to make changes; these Chief Objection Officers will likely not be your buyers, but instead the heads of departments most impacted by the implementation of your software. For example, a marketing team may love the ad targeting platform they use and thus a CMO will balk at new database software that would limit or change the way customer segment data is collected. Or field sales would object to new security infrastructure software that makes it harder for them to access the company network from their phones. The head of the department that will bear the brunt of change will often be a Chief Objection Officer.
Is someone’s job on the line?
Another common pain point when deploying a new software solution is that one or more jobs may become obsolete once it’s up and running. Perhaps your software streamlines and outsources most of a company’s accounts payable processes. Maybe your SaaS solution will replace an on-premise homegrown one that a team of developers has built and nurtured for years.
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Why do SaaS companies with usage-based pricing grow faster?
Today we know of HubSpot — the maker of marketing, sales and service software products — as a preeminent public company with a market cap above $17 billion. But HubSpot wasn’t always on the IPO trajectory.
For its first five years in business, HubSpot offered three subscription packages ranging in price from $3,000 to $18,000 per year. The company struggled with poor churn and anemic expansion revenue. Net revenue retention was near 70%, a far cry from the 100%+ that most SaaS companies aim to achieve.
Something needed to change. So in 2011, they introduced usage-based pricing. As customers used the software to generate more leads, they would proportionally increase their spend with HubSpot. This pricing change allowed HubSpot to share in the success of its customers.
In a usage-based model, expansion “just happens” as customers are successful.
By the time HubSpot went public in 2014, net revenue retention had jumped to nearly 100% — all without hurting the company’s ability to acquire new customers.
HubSpot isn’t an outlier. Public SaaS companies that have adopted usage-based pricing grow faster because they’re better at landing new customers, growing with them and keeping them as customers.
Image Credits: Kyle Poyar
Widen the top of the funnel
In a usage-based model, a company doesn’t get paid until after the customer has adopted the product. From the customer’s perspective, this means that there’s no risk to try before they buy. Products like Snowflake and Google Cloud Platform take this a step further and even offer $300+ in free usage credits for new developers to test drive their products.
Many of these free users won’t become profitable — and that’s okay. Like a VC firm, usage-based companies are making a portfolio of bets. Some of those will pay off spectacularly — and the company will directly share in that success.
Top-performing companies open up the top of the funnel by making it free to sign up for their products. They invest in a frictionless customer onboarding experience and high-quality support so that new users get hooked on the platform. As more new users become active, there’s a stronger foundation for future customer growth.
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Drupal’s journey from dorm-room project to billion-dollar exit
Twenty years ago Drupal and Acquia founder Dries Buytaert was a college student at the University of Antwerp. He wanted to put his burgeoning programming skills to work by building a communications tool for his dorm. That simple idea evolved over time into the open-source Drupal web content management system, and eventually a commercial company called Acquia built on top of it.
Buytaert would later raise over $180 million and exit in 2019 when the company was acquired by Vista Equity Partners for $1 billion, but it took 18 years of hard work to reach that point.
When Drupal came along in the early 2000s, it wasn’t the only open-source option, but it was part of a major movement toward giving companies options by democratizing web content management.
Many startups are built on open source today, but back in the early 2000s, there were only a few trail blazers and none that had taken the path that Acquia took. Buytaert and his co-founders decided to reduce the complexity of configuring a Drupal installation by building a hosted cloud service.
That seems like a no-brainer now, but consider at the time in 2009, AWS was still a fledgling side project at Amazon, not the $45 billion behemoth it is today. In 2021, building a startup on top of an open-source project with a SaaS version is a proven and common strategy. Back then nobody else had done it. As it turned out, taking the path less traveled worked out well for Acquia.
Moving from dorm room to billion-dollar exit is the dream of every startup founder. Buytaert got there by being bold, working hard and thinking big. His story is compelling, but it also offers lessons for startup founders who also want to build something big.
Born in the proverbial dorm room
In the days before everyone had internet access and a phone in their pockets, Buytaert simply wanted to build a way for him and his friends to communicate in a centralized way. “I wanted to build kind of an internal message board really to communicate with the other people in the dorm, and it was literally talking about things like ‘Hey, let’s grab a drink at 8:00,’” Buytaert told me.
He also wanted to hone his programming skills. “At the same time I wanted to learn about PHP and MySQL, which at the time were emerging technologies, and so I figured I would spend a few evenings putting together a basic message board using PHP and MySQL, so that I could learn about these technologies, and then actually have something that we could use.”
The resulting product served its purpose well, but when graduation beckoned, Buytaert realized if he unplugged his PC and moved on, the community he had built would die. At that point, he decided to move the site to the public internet and named it drop.org, which was actually an accident. Originally, he meant to register dorp.org because “dorp” is Dutch for “village or small community,” but he mistakenly inverted the letters during registration.
Buytaert continued adding features to drop.org like diaries (a precursor to blogging) and RSS feeds. Eventually, he came up with the idea of open-sourcing the software that ran the site, calling it Drupal.
The birth of web content management
About the same time Buytaert was developing the basis of what would become Drupal, web content management (WCM) was a fresh market. Early websites had been fairly simple and straightforward, but they were growing more complex in the late 90s and a bunch of startups were trying to solve the problem of managing them. Buytaert likely didn’t know it, but there was an industry waiting for an open-source tool like Drupal.
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