#2: "MRR can be a Vanity Metric" 👀 and other insights
Laura Roeder's advice on the financial nuances to focus on, Latif Nanji's lens on discerning competition in a crowded market, and Jessica Mah's perspective on what the SaaS future might bring.
Hi there,
Welcome to the second edition of The Baton. And to all the new folks who have very recently joined us (*happy dancing*), welcome to The Baton as well! We are so stoked to have you here. :)
Going forward, every fortnight, we will bring you three, select pieces of advice drawn from the thoughtful founder-to-founder exchanges and interviews taking place on Relay and the interwebz. So, stay tuned!
In this edition, we bring to you instructive and inspiring pickings from the brains of MeedEdgar and Paperbell’s founder Laura Roeder, Roadmunk’s co-founder Latif Nanji, and inDinero’s founder Jessica Mah.
⌗1. Laura Roeder, founder, and CEO of MeetEdgar and Paperbell, on why MRR can be a vanity metric and the necessary probing of such numbers founders must abide by.
“MRR can be a vanity metric for bootstrapped businesses. Look at your cash flow instead. MRR and cash flow are two different things. To be able to assess your revenue accurately, you need to understand the exact difference between your projected MRR and the real cash that your company is bringing in every month.
Initially, I made the mistake of thinking that MRR was the same thing as cash flow. I’d think that if my MRR is $1,000 a month, I’m going to have $1,000 in my bank account every month, but that isn’t true because users may downgrade or even churn.
If you are wondering why this difference exists, it is largely because of the nature of a subscription business. A subscription business can have all kinds of plans — monthly subscriptions, annual subscriptions, multi-year subscriptions, and even larger contracts. Each of these impact your MRR calculation in completely different ways.
Let’s take a real-life example: You have a lot of annual contracts coming in for a particular month, and for the next month you have only monthly payments and no annual subscriptions. Naturally, your MRR graph is going to look very different for these two months. While the MRR may fluctuate heavily here, cash flow will be somewhat regular, making it a better indicator of the revenue health of your bootstrapped business.
I’d recommend that you plan your cash flow in detail and strive for a clear understanding of your finances because, to be honest, it’s surprisingly easy to go out of business.”
Note from Krish:
“More and more startups are now able to make progress with alternative capital. Options that allow you to convert your MRR into non-dilutive financing are gaining traction. You have a choice to raise venture capital only when necessary.
But in order to inform such choices, it is important for founders to understand the fundamental ways of SaaS metrics and finance operations.
With that context, Laura’s observation about cash flow and MRR is such a nuanced distinction; something that a lot of first-time founders miss out on. As a full-time finance hire is still far off in the journey, striving for clarity on such core metrics as Laura recommends, is critical to not just building a good business, but for survival.”
⌗2. Latif Nanji, co-founder and CEO of Roadmunk, on discerning competition (and the inherent, incredible potential) in a crowded category.
“Marketing and positioning are challenging depending on the space. It’s highly contextual, but uniqueness in a crowded space is ultimately the move. Think about the project management market, it's over-crowded like an NYC subway station. But there are ways that brands and organizations can tailor messaging to specific champions and users that let them know the VALUE they will get.
And if you offer identical value in the product (which is almost never true), then it's about service, support, education, and experience. And those have all sorts of possibilities.
Personal headspace on the competition. There are people that say “Ignore your competition and listen to only your customers.” And others who say “Destroy all of them and be a monopoly.”
I’m somewhere in the middle. I think markets are much more difficult to cross-exam and so are users. I think you need to be solid with a value prop, and attack with that hard, but also recognize that spaces like marketing automation can be cut in a zillion different ways – the question is, can you carve out an addressable market that is big enough that lets you have an advantage above all others?”
⌗3. Jessica Mah, founder, and CEO of inDinero, having spent a decade scaling her SaaS business, on how she sees the next decade shaping up for the industry.
“I think B2B SaaS is going to see even higher valuation multiples given what’s happened with COVID. Investors want to find companies that are truly sustainable during good times and bad. B2B SaaS certainly fits the bill.
More competition driven by more investor access and funding, which will significantly drive up costs of customer acquisition and in many ways force companies to raise significantly more money than what they might have needed in the past decade.
Old school businesses will be SaaSified by the end of this next decade. We’re doing it in accounting and I am actively exploring other industries to SaaSify as we speak. “
Upcoming: Tête-à-tête with Chris from Trainual
On August 20th, we’re excited about hosting Trainual’s Founder and CEO, Chris Ronzio for an AMA session. Founded in early 2018, they now serve 3000+ paying customers. Trainual has seen consistently amazing growth (35% M-o-M) thanks to their focus on constantly prioritizing not just product-market fit but getting to an almost perfect product-channel fit from the very beginning.
Chris will be addressing questions on why systems and processes are key to growing your business, hiring, and onboarding while working remotely, what it takes to make paid marketing work in the early days, converting 8% of website visitors into trial users, starting up at 14, and what having mentors like Infusionsoft’s Clate Mask has taught him about building a SaaS business, among other things.
Here’s Chris on when (and when not to) pay heed to the competition:
“I think when you’re just starting out you need to look at the competition and figure out how you’re different. But then when you start building, once you’ve got that difference, I was not looking at the competition at all. Because you’re building towards your vision of the thing. And then as you start to hit the scale where you get enough customer feedback, they’ll start to point at competitors that they are comparing you against and then you decide if that feedback fits your vision or not or if it’s just a bad customer you don’t want.”
Relay members can find the AMA and ask him a question here. If you’re a SaaS founder and would like to join Relay, you can apply here.
Until next time,
Astha and Akash