Mark Roberge is the founder of Stage2Capital investing in SaaS companies and helping them grow, he’s a Professor in Entrepreneurship at Harvard Business School, the former CRO of Hubspot and the author of the best-selling book, The Sales Acceleration Formula. All proceeds from the book go to https://build.org/ – BUILD is dedicated to proving the power of experiential learning through entrepreneurship and igniting the potential of youth in under-resourced communities.
This article is based on a recent Notion Capital interview with Mark you can listen to in full here.
- The three phases of startup growth
- Why customer retention and revenue expansion are the most important measures of product-market fit
- How you know if you have go-to-market fit
- And why “pacing” is critical for “growth and mo”
Mark started his journey at Hubspot with little sales experience, but with two things in mind: the vision of the sales machine he wanted to engineer; and the desire to find a way to create predictable, scalable revenue growth.
His thinking went like this, “If I can hire the same successful prototype of rep each time, if I can train them to have the same skills, provide them with the same quality of leads and hold them accountable – through data-driven coaching – to running the same process, maybe I can create a machine that enables predictable, scalable revenue growth.” He obsessed about those four repeatedly and they formed the basis of his book, The Sales Acceleration Formula.
In a wide ranging interview, we discussed many aspects of growth in SaaS, starting with the start up journey.
The sales machine evolves as the company grows
Mark has an extraordinary ability to make the complex simple, always a sign of people who obsess about a topic. Through his time at Hubspot – and then subsequently with many startups – he has codified and simplified the startup journey in three distinct phases:
- Phase 1 – product-market fit;
- Phase 2 – go-to-market fit; and
- Phase 3 – growth and moat.
Finding product-market fit
Mark describes the product-market fit phase as being “all about agile”.
“You are jacks of all trades, all in the same room just figuring it out. That style of working leads to a company’s very first crisis. No one is leading the business and someone needs to take charge. That was my first big learning, if you want to ride the wave and grow fast you don’t just have to adjust your culture you have to change yourself as a leader. “
Any SaaS founder will agree that knowing if you have product-market fit is tough, but if you are going to grow fast it is crucial to know.
Mark defines product-market fit as “consistent customer value creation”. When he now looks at a company as an investor the first thing he asks is, “What’s your customer logo retention and what’s your revenue retention?” For Mark, anything more than 80% logo retention and 100% revenue retention is good enough to warrant a second meeting.
But as he points out, the trouble with these measures though is they are lagging indicators. “Next I look for the lead indicators, for example, 60 days into a customers life span, what percentage of customers are using your product every week? What can you measure that strongly correlates with long term value and retention?”
So if a founder can consistently sign up a dozen or two dozen customers every month and 80% of them are using their product every week 60 days later, that’s when they can safely “we have product-market fit”.
Many founders and VCs only think about the revenue growth and chasing the mythical “triple, triple, double, double, double” and ignore the actual value being created. “That thinking leads a lot of companies to the graveyard”.
Mark is spot on.
When founders think about customer value creation first and foremost it puts way more emphasis on choosing the right customers, selling to them with the right expectations and onboarding them right. Mark summarises it well by saying than if founders are spending their time flying around helping onboard customers and ensuring they are getting the value they expect, you know you are on the right path. “If you check that box: “I got it! I sign up two dozen customers a month, 60 days later 80% are using the product every week” then you are ready to move to the next phase.”
Step 2 on our journey to predictable scalable revenue growth? Go-to-market fit
If you you’ve checked the product-market fit box you now need to figure out how to grow profitably.
What matters next, says Mark is “scalable demand gen”, being able to bring on more reps and specialising the sales roles. “Pricing starts to matter a ton at this point, it drives your unit economics. Comp plans matter a ton too!”, says Mark.
How do you know you have go-to-market fit?
You already have more than 80% of your customers getting success in sixty days, logo churn is less than 80% and you have more than 100% revenue retention. But now you add in a payback period of less than 12 months. “Bam, I am ready to grow and grow fast.”
Step 3 is Nirvana, Growth and Moat.
Mark is at pains to state that “growth and moat isn’t about going crazy and shifting from 5 to 50 reps in one month!” The critical factors at this stage are pacing and learning.
If a company as hired 5 reps in the previous 12 months, it makes complete sense that in no sense are they ready to hire 15 in the month after a big Series A, “you have no idea how to hire them, feed them, manage them or comp them!”, says Mark. “What’s more, as a company you have no idea of how to absorb the customers they bring on if those reps are successful.”
So how is “growth and moat” all about pace?
“Say you have five reps and raise that big Series A – start by hiring a rep a month for six months and watch your numbers and learn. Then move to two reps per month and watch your numbers and learn.”
Mark is clear this is not about growing slow, it is about growing smart.
“Go as fast as you can. Simply pursue the appropriate goal given the stage of your business. Obsess about customer success numbers and watch our unit economics like a hawk. If you are still good, increase the pace even faster. In fact keep increasing the pace until things break, fix them and grow again.”
That is what it means to learn your growth pace and how you build the competitive moat based on rock solid customer success and unit economics.
In the next article we will be discussing why and how leaders redefine and reinvent themselves as the company grows.