Triple, Triple, Double, Double, Double

Coffee orders?

No! “Triple, Triple, Double, Double, Double” (2T3D for short) describes an approach to building a successful SaaS company developed by Neeraj Agrawal, a general partner with Battery Ventures in Boston.

7 Phases of go-to-market success for SaaS companies

Phase 1: Establish a great product-market fit. This involves finding and prioritizing customer pain points, then aligning your product to address those pain points precisely. Many founders ask me how they’ll know they have product-market fit. Unfortunately, there’s no clear test here.

Phase 2: Get to $2 million in ARR (annual recurring revenue). In this phase, the founders are closing all the new sales, so the name of the game is landing the “right” starter clients and perfecting your sales pitch and funnel strategy. Assuming your average deal size in the $30K-$80K range, this means getting to 30-60 customers. Completing this phase usually takes a year or two.

Phase 3: Triple to $6 million in ARR. I often see SaaS founders take two paths to reaching this first “triple” goal. In the first scenario, which I call the “hero” approach, the founders close just about every deal. That’s a tenacious strategy, but not scalable.

The second, “sales machine” approach is more difficult, but preferable. It involves hiring the right sales leader, plus five to 10 reps, and priming them to scale the next peaks. Perhaps half of these salespeople will be productive during this period, but others will be ramping for the following year.

Phase 4: Triple to $18 million. Here’s where the magic kicks in, similar to how you feel when you reach the first base camp on the mountain. Here, renewals and referrals help fuel sales, likely driven by just 10 to 20 sales reps, of which half might be fully ramped. Then you reach another milestone: adding a second layer of sales management underneath the VP of sales.

This can be difficult for a founder/CEO, as he or she is now three levels removed from the actual people selling the product. But at the same time, a founder/CEO can really grow during this phase, transitioning to thinking about cultivating new managers and landing really large accounts. The magic moment is when deals start closing that no founder was actively involved in pitching/closing.

The seeds for massive scalability are planted here. In my experience, successfully adding a second layer of sales management is one of the most difficult milestones for SaaS companies.

Phase 5: Double to $36 million in ARR. This phase involves fielding a team of about 20-30 sales reps and three to five front-line managers. Its major challenge, though, is getting sales in Europe working. International efforts often get started in this phase with a VP or sales rep hired somewhere in EMEA (some combination of U.K., France and Germany). Many companies make the mistake of entering multiple international regions at once.

I encourage my founders to get EMEA working first; go deep versus wide. Put a team of three to five reps in the U.K. versus one to two in each country. This allows you to build customer references, develop a playbook and cultivate country leaders who will make sure you have success.

Phase 6: Double to $72 million. This phase is rife with operational challenges. Should you promote someone within sales to run your North America division or hire from outside? Hire a worldwide CRO or have EMEA report to the U.S. leader? Another thorny issue many companies tackle here is establishing non-linear growth or getting the reseller or partner channel working.

In my experience, it’s premature to get a reseller network up and running for a SaaS company before hitting a $50 million run rate. There are simply just not enough economics for the channel partner to prioritize the effort. In addition, I prefer quality over quantity – just try to get one or two channel partners productive versus dozens. It’s so hard to get even one reseller relationship working in the field.

Phase 7: Double to $144 million. The summit is close. The $1 billion valuation milestone, and a potential IPO, are both within sight. However, with luck and hard work, this will be just the beginning. At a recent IPO celebration, the head of NYSE remarked that, for the exchange’s great companies, 90 percent of value is created post-IPO. I firmly believe this. It’s the reason why I invest across early and late venture stages. If I’m doing my job right, all these private companies are just early-stage businesses. After completing Phase 7, the next major milestone is now set — getting to $1 billion in revenue!

The following chart gives a real-life illustration of how seven high-profile, public SaaS companies we have identified — Marketo, NetSuite, Omniture, Salesforce, ServiceNow, Workday and Zendesk — each roughly followed this triple, triple, double, double double (T2D3) growth path to achieve their success.

2t-3d-saas-growth

You can see Neeraj’s original full post here: http://bit.ly/saastraveladventure  

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