Wednesday, July 31, 2019
13 Simple Ways to Learn From Other Entrepreneurs
As an entrepreneur, it’s important to stay on top of the latest trends in your industry. There are many different ways to do this, from networking to following news articles to listening to podcasts. To find out the best approach, we asked a panel of Young Entrepreneur Council and YEC Next members the following question:
Q. Entrepreneurs often seek to gather and share information. What is your preferred method for finding out what’s important from others in your field?
1. Listen to industry-related podcasts
I prefer listening to industry-related podcasts. Because of the audio format, I can listen and learn while I’m doing other things. This makes it easy to stay on top of what’s important and what’s on trend, and still get other things done at the same time. Find a podcast that features a lot of guests so that you can hear varying opinions on the same topic. —John Turner, SeedProd LLC
2. Seek information from your connections
Email newsletters are a great way to get an introduction and overview of what’s new in your field. Beyond that, I’ve found that the best conversations about my industry have been with connections through mutual friends, investors, and colleagues. —Kyle Wiggins, Keteka
3. Read articles from multiple sources
My Flipboard is curated to the topics I want to know more about. I read probably 10-plus articles a day on different topics I want to know more about. I also don’t only read from one source, either, as that will limit my intake to one vein, so I get articles from at least 50 different publications. Reading is hands down the best and fastest way I have found to learn what I want to know quickly. —Ben Walker, Transcription Outsourcing, LLC
4. Join niche social media groups
The best way to receive and share information is through niche social media groups. They are great places to network, share ideas, and find out new things happening in the industry. I also tune into podcasts that focus on startups and other business-related topics. —Blair Thomas, eMerchantBroker
5. Be a student of your industry
I stay on top of trends and the latest news in my industry by being a constant student of the field. I make time every day to read posts on Medium, watch YouTube videos, or explore blogs from people who are doing interesting work. This keeps me engaged and growing as a professional, and as engaged as I was when I was younger and everything was still new to me. —Kristine Neil, Markon Brands
Other Articles From AllBusiness.com:
- The Complete 35-Step Guide for Entrepreneurs Starting a Business
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- 17 Key Lessons for Entrepreneurs Starting a Business
6. Follow quality publications via Feedly
I’m involved in multiple industries, from SEO to motorcycles, and read highly reputable online publications on a daily basis. I use Feedly, which organizes information into subject categories. I organize mine into content marketing, SEO, motorcycles, business development, etc. That way I choose the headline that will provide the most value for that moment, and can return to the others when needed. —Ron Lieback, ContentMender
7. Subscribe to trade group publications
Participation in trade groups or industry-specific organizations can be very helpful. For instance, my local bar association offers numerous networking events and monthly journals to highlight recent developments in our industry. Reviewing the monthly journal helps me stay up to date with changes in my industry and identify future market trends. —Matthew Podolsky, Florida Law Advisers, P.A.
8. Ask others directly
I tap into a community of entrepreneurs within the Entrepreneurs’ Organization to learn more about what’s important in my field. I do this because I don’t have the patience to read a lot of research and I would rather hear about someone’s personal experiences before I put time into reading more about specific subjects. I trust those people and the culture of sharing in the group. —Vladimir Gendelman, Company Folders, Inc
9. Go to specialized events
Typically, I like talking to people in person about new information in my industry. I find it helpful to attend niche events and discuss these thoughts and ideas face to face. You’ll also get a chance to see the technology or advancements in action! —David Henzel, LTVPlus
10. Participate in group chats
I’m involved in a few different fields of business. Some have a bit of overlap while others form a completely separate niche. In order to stay informed of developments and happenings in all these disparate circles, I participate in group chat rooms across different platforms. One of these groups is over iMessage, another is in a Slack channel, while yet another is in a Skype group conversation. —Bryce Welker, Beat The CPA
11. Visit entrepreneur-focused websites
One of the best ways to find out what’s important to other entrepreneurs is to read the websites that they typically peruse. Four of the best include Inc., Mashable, Forbes, and BusinessWeek. Inc. is geared towards real-life information for entrepreneurs, Mashable is good for tech and media, and Forbes and BusinessWeek are better for objective commentary. —Andrew Schrage, Money Crashers Personal Finance
12. Find and follow your industry experts
I am always monitoring the latest and greatest in marketing and publicity, which is an ever-changing and growing industry. This includes following some of my favorite, credible experts via email subscription; Twitter, Facebook, Instagram and LinkedIn feeds; and blogs. I also follow credible industry groups to stay in tune with the latest and greatest news, tips, trends, and conferences. —Angela Delmedico, Elev8 Consulting Group
13. Reach out and invite people to meet up
The best way to keep tabs on your industry is to go out and meet others, either for coffee or at events and meetups. We handle international taxation, and in our industry, discussing tax issues is fun and exciting, and CPAs are always willing to share their viewpoints, interpretations, and client situations since there are so many grey areas. Don’t be afraid to reach out! —Vincenzo Villamena, Online Taxman
RELATED: 10 Business Podcasts Every Entrepreneur Should Be Tuning In To
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Tuesday, July 30, 2019
Toxic Employees Can Have Deadly Consequences for Your Business
Toxic employees are like any other dangerous substance; in the context of a business, they can poison a workplace. What may have once been a congenial group of employees can seemingly turn into a renegade band in which no one has any loyalty to the company or even cares what happens in the future as long as salaries are paid.
Business owners and managers need to stay aware and be vigilant of employee attitudes and needs. This comes from having open and honest communication. When interaction breaks down between different levels of employees (owners and managers, managers and subordinates), the stage is set for any toxic employees to become focal points for the other employees.
Of course, situations that have nothing to do with a business might be the cause of an employee’s discontent: family, financial, health issues, etc. Regardless of the source of a person’s unhappiness, it still must be dealt with if the attitude negatively affects the business environment. It is precisely for this reason management must properly and promptly handle toxic employees so the overall employee attitude and company efficiency is not negatively impacted.
Consider the following ways to handle difficult, toxic employees:
Be patient and maintain composure
Toxic employees are like kegs of gunpowder ready to explode at any second. They look for any opportunity to express their frustrations, try to intimidate, or be aggressive with the people around them. Push the wrong button, and havoc reigns supreme.
Rather than being provoked into arguments that probably can never be won, it is important that you are patient and maintain your composure when you deal with an upset employee. Rather than challenging and inflaming an already tense situation, a calming approach rather than a defiant approach will allow the employee to regain a sense of stability and rational thinking. The idea is to reduce tensions not elevate tensions.
Be direct
Strong and clear communication is a necessity. Dealing with a toxic employee is not a time for “beating around the bush.” Employees must know what is expected of them and that there are consequences for their actions—both good and bad. When employees do not have clear expectations, they are more inclined to test the limits of management to see exactly what will and will not be tolerated. Strong, direct communication and successful leadership are interrelated.
Other Articles From AllBusiness.com:
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- How to Create A Great Investor Pitch Deck for Startups Seeking Financing
- 17 Key Lessons for Entrepreneurs Starting a Business
Be proactive
When you’re having a conversation with a toxic employee, think about what can be done to improve the work environment that might alleviate the employee’s level of stress and anxiety. In other words, be proactive in actions rather than reactive with actions. This is a time to depersonalize the situation and think like the employee—symbolically putting yourself in their shoes. Rather than pitting yourself against the employee, think emphatically about what you can do to help turn them into a positive, energetic worker.
Remove the spotlight
Toxic employees love to be in the spotlight. It’s their time to shine and get attention. When the glare of the spotlight is removed, many times issues will subside or completely disappear.
As a manager, you need to remember your time is valuable and cannot be consumed with attention-seeking employees. It is far better to work with employees who have positive attitudes and can help the business achieve its goals. There comes a time when toxic employees need to either get “on board” or plans have to be made for a timely exit. The spotlight should always be on the business and not on the unhappy employee.
Be consistent
All employees should be handled in the same manner. Boxing gloves cannot be used on some while kid gloves are used on others. Rewards and praise need to be given for superior performance, and negative consequences for poor performance and bad attitudes. Good employees resent unequal treatment while toxic employees relish inconsistent behavior by management.
No place or time for toxic employees
Your business’s success depends on every employee at every level being as productive and efficient as possible. Toxic employees cannot be allowed to disease an energetic workforce. We’ve all heard this expression: “One rotten apple spoils the barrel.” Well, one toxic employee can ruin an entire workforce.
RELATED: 4 Ways to Keep Toxic Clients From Poisoning Your Business
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Video SEO: 5 Ways to Optimize Your Videos for Search Engines
By Brianna Pyne
If video isn’t already an integral component of your content marketing strategy, then you may already be falling behind the curve. According to the Cisco Visual Networking Index, video is forecasted to account for 80% of all internet traffic in 2019. This means consumers are more than ever relying on video for information on potential products and services they intend to purchase. Brands are cognizant of this dynamic too.
But simply recording and posting videos on your web page isn’t going to immediately start attracting large volumes of traffic. You also need to implement video SEO.
What is video SEO? Video SEO is similar to its text cousin, and refers to the practice of optimizing your videos to be indexed and ranked on search engine results pages (SERPs) for your relevant keywords. However, it’s getting increasingly competitive out there. As more businesses hop on to the video bandwagon, you’ll note there’s an array of new content competing for the same keywords and search queries.
To make your videos SEO friendly, try to incorporate these best practices so that you stand out from the crowd:
1. Focus on content
While your objective when publishing a video is to rank on search engines, this cannot override the quality of the reel itself. The content of your video must be highly engaging, likable, and shareable. Spend time crafting your storyboard and use advanced editing software like Adobe Premiere Pro to make it stand out. The better your video is received by audiences, the higher it will rank on search engines.
Try to ensure the video has a key takeaway that elicits an emotional reaction with your target customer. This will compel them to tweet about it, share it with friends and family, or just play on repeat.
The viral Dollar Shave Club introductory video attracted 600,000 views in its first two days with almost 5,000 orders. It helped catapult the brand into a household name, catching the eye of several top-tier investors, too. Now that’s the power of an effective video marketing strategy.
2. Craft a snappy title and description for your video
“On the average, five times as many people read the headline as read the body copy.” This timeless advice from David Ogilvy, the guru of modern advertising and copywriting, should be ingrained into your marketing ethos. Don’t make the mistake of thinking it only applies to a content-heavy post.
A stimulative and snappy video headline is the difference between a potential lead clicking on your video or ignoring it for the competition. Spend some time brainstorming a few headline possibilities, and elicit feedback from your team members before settling on one.
The same principle applies for the meta description of the video. Try to add in relevant keywords so that search engines understand what the video is about. This makes indexing easier and should help bring in more relevant traffic to your site.
Other Articles From AllBusiness.com:
- The Complete 35-Step Guide for Entrepreneurs Starting a Business
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- 17 Key Lessons for Entrepreneurs Starting a Business
3. Publish on multiple platforms
You may not be convinced about publishing your videos on platforms like YouTube and Facebook, but the fact is these platforms rake in almost 4 billion combined users every month. That’s a sea of traffic you can’t afford to lose out on.
We understand when potential customers view your video on another platform, there’s no guarantee they will eventually navigate to your site. However, you can try to nudge them in your direction by creating backlinks to your web page, in both the video description as well as the profile pages.
You should definitely post videos on your site, too, but don’t lose out on the billions of searches taking place every day on other platforms.
4. Optimize for mobile
Web search and browsing on mobile overtook desktop traffic in 2016 and shows no signs of slowing down. And Google itself announced it would be placing a high priority on mobile-optimized sites when it comes to determining search rankings.
If you’re not adopting a mobile-first strategy then you may be penalized in the SERPs—that’s something you want to avoid at all costs. Make sure your developers are aware of this. If you rely on hosting services, many of them automatically offer mobile optimization.
5. Add video transcriptions
Google’s crawler scours the web, reading text to determine site content. Attaching a text-based transcription on your video page will help search engines to index the content. You could also go a step further and add a few keywords in your transcription to make the job even easier for the crawler. That would help muscle out the competition.
RELATED: Low-Cost Ideas for Using Video in Your Content Marketing
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Monday, July 29, 2019
12 Key Issues for SaaS Startups Seeking Financing
By Mitch Zuklie and Richard D. Harroch
SaaS (Software as a Service) companies are attracting some of the top talent and funding in technology today. The most notable SaaS companies occupied seven of the top 10 verticals by venture capital deal activity recently, and three of the top 10 by investments. Venture investment is running ahead of last year’s pace, which was more than double the volume of each of the prior three years.
SaaS is being applied to solve all kinds of problems, such as monitoring and security, business intelligence analytics, accounting and finance, healthcare, HR and workforce management, customer relationships, and advertising, sales and marketing. Altogether, revenue for SaaS companies is predicted to grow 17%, generating an $85 billion market.
From an investor perspective, there is a lot that is attractive: scalability, ease of approach, recurring revenue streams, and high gross margins.
So, what does it take to stand out from the pack and get your SaaS company financed? The following is a checklist to help you succeed in raising venture capital, seed, or angel financing.
1. A Great Investor Pitch Deck Is Essential
Raising capital from investors is difficult and time consuming. Therefore, it’s crucial that a SaaS startup absolutely nails its investor pitch deck and articulates a compelling and interesting story.
Here are some pitch deck tips:
- Tell your story in 15 to 20 slides. (If you can’t tell the story with brevity, you can’t tell it well.)
- Explain why the market opportunity is large–and where you fit in.
- Describe the talent on your team. Many investors are skeptical of single-founder startups. While there are notable exceptions, they are rare. Startups are a team sport. SaaS is no different in this regard.
- Where possible, tell your story visually.
- Don’t provide excessive financial details. Hit the key indicators and save the rest for follow-up.
- Don’t try to cover everything in the pitch deck. Your in-person presentation will give you an opportunity to add and highlight key information.
- Use plain English–jargon or acronyms distract from your story.
- Don’t underestimate or belittle the competition.
- Make sure your information and metrics are up to date.
- “Look and feel” matters. Think of it as your investor interface, and consider getting professional graphics help.
- Review other pitch decks for ideas on presentation.
- Be sure to include the following wording at the bottom left of the pitch deck cover page: “Confidential and Proprietary. Copyright (c) by [Name of Company]. All Rights Reserved.” This helps protect your intellectual property.
- Send the pitch deck in a PDF format to prospective investors in advance of a meeting. Relying on Google Drive, Dropbox, or some other online service just puts up a barrier to the investor actually reading it.
For additional guidance, as well as templates, see How to Create a Great Investor Pitch Deck for Startups Seeking Financing.
2. Can You Get Angel Investors for Your SaaS Startup?
Angel investors invest in early stage or startup companies in exchange for an equity ownership interest. The typical angel investment is $25,000 to $200,000 but can go much higher.
- Angel investors particularly care about the quality of the management team and how big the market opportunity is.
- Angel investors want to understand the big problem you are attempting to solve. They like to see a clearly articulated elevator pitch for the business, an executive summary or slide pitch deck, a beta version of the SaaS offering, evidence of early traction, and support as to why there will be a large demand for the service.
- Angel investors run the gamut from friends and family to professional angel investors.
- You can find angel investors through attorneys, other entrepreneurs, angel investor networks (such as AngelList), venture capitalists, investment bankers, and crowdfunding sites like Kickstarter and Indiegogo.
- Don’t bother asking angel investors to sign a non-disclosure agreement—most won’t do it, and it will only slow down the process.
There are a number of good articles on the subject of angel investing, including:
- Angel Investing: 20 Things Entrepreneurs Should Know
- 50 Questions Angel Investors Will Ask Entrepreneurs
- The 10 Commandments for Obtaining Angel Funding for Your Start-Up
3. Venture Financing for SaaS Startups
After a round of angel financing, SaaS startups often seek the financing and support of a venture capital firm. VC firms provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more. In exchange, venture investors will typically obtain a preferred equity position in the company, seats on the Board of Directors, veto rights, anti-dilution rights, and a say in how the business is to be run.
Here are some key things to know about venture capital financing:
- Venture capitalists typically focus their investment efforts on specific industry sectors, on stages of a company’s life (early stage seed or Series A rounds, or later stage companies that have achieved meaningful revenues), and geography (e.g., Bay Area, Southern California, New York, Boston, or Santa Monica). Know the firm’s focus before you approach it.
- Valuation of the company will likely be one of the main issues and it is negotiable; there is not one “correct” valuation methodology or formula to rely upon.
- A venture capitalist who is interested will submit a non-binding “term sheet,” which will set out the key terms of the proposed investment. Experienced corporate counsel should be engaged to help navigate and negotiate on the issues.
- The amount of control and Board seats will be important for both the entrepreneurs and the venture capitalists.
- The venture investors will insist on anti-dilution protection and the right to participate in future rounds of financing.
- Venture investors will perform extensive due diligence before consummating the investment (a venture financing process could take 30 to 90 days to close).
- The venture investors will want to make sure the founders have incentives to stay and grow the company and will likely request that the founders’ shares become subject to vesting based on continued employment (and then become “earned”).
- After a financing is completed, venture investors will often hold a minority interest in the company. However, they will typically insist on “protective provisions” (veto rights) on certain actions by the company that could adversely affect their investment or their projected return.
There are a number of comprehensive articles on the venture capital financing process, including:
- A Guide to Venture Capital Financings for Startups
- 65 Questions Venture Capitalists Will Ask Startups
- 28 Mistakes Entrepreneurs Make When Pitching to Investors
4. Show That the Market Opportunity Is Substantial
Investors want to invest in big opportunities with large addressable markets. Make sure you are able to:
- Define the initial market you are in and its dollar value.
- Show that your company will be positioned to capture a large part of the total addressable market.
- Consider other markets that your company’s services can address beyond your initial market.
- Consider markets your service can “unlock” for strategic partners in other industries.
Phil Dur, the co-founder of PeakSpan Capital, a venture capital firm investing in SaaS companies, states:
“One of the more significant determinants of company value obviously is market opportunity. If you are performing well, and in a rationale competitive dynamic in a market that ‘matters’ to a lot of customers, you’re likely to see this reflected back in the valuation ascribed to your business. Don’t hide the ball! Be forceful and clear about the attractiveness of the market opportunity you are pursuing.”
5. SaaS Business Model Issues
Investors are particularly sensitive to a number of key business model issues inherent in SaaS companies, including:
- With so many SaaS offerings out there, how can you get noticed and be differentiated?
- How long is the sales cycle?
- How easy is the onboarding process for new customers?
- Can the company find a scalable way to acquire users?
- How can churn be mitigated?
- Can the long-term value of the customer be increased over time, while decreasing the cost of acquisition of a customer?
- Is the service user-friendly enough?
- What level of customer support is necessary to ensure customers are satisfied?
- What ongoing product improvement costs will the company face?
- Can the company manage a significant growth in users from a technical standpoint with acceptable financial consequences?
Is the subscription management/fees process easy and efficient? (Some companies build their own subscription management solution; others use a third-party platform such as Apptus.)
6. Intellectual Property and Technology Issues for SaaS Companies
SaaS investors are particularly interested in a company’s software, technology, and underlying intellectual property. The questions the investors will pursue include:
- How differentiated is the company’s software?
- What competitive advantages will there be over existing SaaS offerings?
- How easy will it be to replicate the company’s offering?
- How costly will it be to fully build out, maintain, and enhance the offering?
- What key IP does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
- How was the company’s IP developed?
- What comfort is there that the company’s IP does not violate the rights of a third party?
- Is the IP properly owned by the company, and have all employees and consultants assigned the intellectual property over to the company?
- Would any prior employers of a team member have a potential claim to the company’s IP?
- If the IP was developed at a university or through government grants or with open source technology, does the company have the right to use the technology?
See 10 Intellectual Property Strategies for Technology Startups.
7. Make Sure You Understand the SaaS Competitive Landscape
The company’s competitors will always be an issue for investors, as some investors believe the SaaS marketplace is oversaturated in some subsectors. You will need to be prepared to answer the following questions:
- Who are your company’s chief competitors?
- What gives your company a competitive advantage?
- What are the key differentiating features of your offering?
You must show a thorough understanding of the current competitive landscape and be prepared to answer questions about your competitors. If you don’t fully understand your key competitors, the investor may conclude that you really don’t understand the market. Your competitors will often be large, well-capitalized companies, so expect the inevitable question about how you can reasonably compete with bigger players.
8. What Traction Have You Obtained?
A company that has obtained early traction will be more likely to obtain investor financing and with better terms. Here’s how you can demonstrate it:
- The creation of a beta or minimally viable offering
- Initial or pilot customers
- Strategic partnerships
- Customer testimonials
- Admission into competitive programs such as Y Combinator or other technology accelerators or incubators
- Early press or social media buzz
An investor will probe into what has driven these successes and how they can be accelerated and scaled.
Andy Thompson, CEO of the San Francisco SaaS company Safehub, which monitors the structural integrity of buildings and gives real-time alerts to building owners, states:
“We found it extremely important in our presentation to investors that we were able to show them a working demonstration of our SaaS dashboard, and that we were able to show initial customer pilots. Plus, we were admitted to the accelerator program at Bolt in San Francisco. This allowed us to raise a significant first round of financing.”
9. The Key Financial Metrics for SaaS Companies
Here are the important financial metrics for SaaS companies:
- Monthly Recurring Revenue (MRR)—For SaaS companies primarily with monthly subscription contracts, show MRR. It has the following three components:
- New customers added in the month
- Existing customers that have terminated their subscription
- Increased revenues from existing customers who have expanded their subscription
- Annual Recurring Revenue (ARR)—If you offer yearly or multi-year subscriptions, the primary focus is on ARR.
- Annual Contract Value (ACV)—Annual Contract Value is the average annualized revenue per customer contract. For example, if the company had one customer under a three-year contract for a total of $30,000, the ACV would be $10,000. This is the average across all customers.
- Lifetime Value of a Customer—What is the lifetime value of a customer? Obviously in the early days of a startup this will be hard to quantify. But it is important to project the potential lifetime value of a customer to assess marketing costs and customer profitability.
- Gross Margins—Gross margin is the company’s net sales revenue minus its cost of goods sold. This represents the amount of sales revenue left over after the company has incurred the direct costs of producing the SaaS product.
- Cash and Cash Flow Burn—SaaS companies often face significant losses in the early years, resulting in an associated cash flow problem. And the faster the growth, the greater the cash flow problem. So, SaaS companies have to carefully consider their burn rate and capital requirements. Entrepreneurs must continually monitor their cash position and changes in cash position.
- EBITDA—Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is often used to measure a company’s operating performance, without factoring interest costs, taxes, or accounting adjustments.
- Customer Churn—The churn rate is the rate at which the company is losing customers. A high churn rate can show that customers are not satisfied with the product or not finding enough value for the cost.
- Customer Funnel Metrics—How many raw leads or inquiries for the product is the company getting a month? How many of those are converting to paying customers? What lead sources are the most profitable? How does the company increase leads?
- Customer Acquisition Cost—What is the average cost to acquire a customer? Be careful not to underestimate these costs.
Ideally, you will develop an online dashboard that allows you to easily monitor and report these key metrics.
And make sure you are learning from these metrics—and learning fast. Boards and founders often are very slow to react to slowing sales traction, taking a few sales cycles to diagnose a problem, and then more time to find a solution. The problem is typically the product, the sales team, or marketing. It’s best to figure out the solution very quickly.
Dean Stephens, the CEO of San Francisco-based SaaS health company Talix, Inc., states:
“SaaS financial and operating metrics provide powerful insight into product and company performance. Without such knowledge, leadership teams are blind. With it, we can make timely changes in sales, marketing, product, and other investments. And this metrics tracking should not be an expensive overhead cost to maintain. Today’s off-the-shelf reporting tools should link accounting, budgeting, contracts, sales and marketing activities, and customer success into a lean, smart reporting infrastructure.”
10. Are the Company’s Financial Projections Realistic and Interesting?
If a SaaS company presents investors with projections showing the company will achieve $3 million in ARR or revenues in five years, they will have little interest. Investors want to invest in a company that can grow significantly and become an exciting business. Alternatively, if you show projections in which the company predicts to be at $500 million in three years, the investors will just think you are unrealistic, especially if you are at minimal revenues today. Avoid assumptions in your projections that will be difficult to justify, such as how you will get to a 400% growth in revenue with only a 20% growth in operating and marketing costs.
In order to believe your financial projections, investors will want you to articulate the key assumptions you have and convince them those assumptions are reasonable. If you can’t do that, then the investors won’t feel you have a real handle on the business. Expect that investors will push back on the assumptions and that they will want you to have a cogent, thoughtful response.
11. The SaaS Customer Agreement
Investors will want to see your customer agreement. It should include:
- A limited non-exclusive right for the customer to use the service in compliance with the terms of the agreement
- The term of the license (month-to-month or year-to-year is the typical term)
- Pricing for the service
- How the contract gets renewed (such as by auto renew)
- Termination rights by the subscriber and the company
- Intellectual property rights ownership retention by the company
- Limited representations and warranties by the company, and disclaimer of any other representations and warranties
- Service levels
- Maintenance and support obligations
- Limitations and exclusions of liability
- Data security and privacy provisions
- Limited indemnification protection
- Dispute resolution procedure (such as by arbitration and excluding the right to bring class actions)
- Force majeure clause
This is an area where a tech transactional lawyer can provide real value—and help you sleep at night.
12. Legal Issues for SaaS Startups
Finally, investors will look at several more questions to ensure your house is in order from a legal perspective:
- Has the company been properly organized? (Most investors prefer investing in corporations, not LLCs.)
- Is the company paying attention to data privacy and cybersecurity issues? Is it in compliance with GDPR and other applicable federal and state laws? Is it CCPA ready? If it’s healthcare-focused, is it HIPAA compliant?
- Has the company complied with applicable securities laws when issuing stock or options in the company?
- Has the deal with co-founders been made clear, especially if one founder were to depart the company?
- Is the company in compliance with employment laws? Does it have appropriate policies in place, such as those prohibiting sexual harassment? Has it obtained all appropriate employment documents from employees?
- Are all employees and contractors required to sign Confidentiality and Invention Assignment Agreements?
- Is the company taking appropriate steps to legally protect its intellectual property?
- Are key tax considerations taken into account?
- Does the name of the company or its service pose any trademark issues, domain name problem
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6 Surefire Strategies to Kickstart Employee Engagement
According to Gallup, employee engagement is on the rise with 34% of employees engaged at work. While that’s great news, it still leaves 66% of employees who are potentially not engaged or not happy at work. And chances are, these disengaged workers are also less productive and loyal to your business.
Employee engagement is a major contributor to your business’s success. If your employee engagement is on the rocks, learn how to develop and sustain employee engagement at your business.
Employee engagement strategies
Employee engagement can work wonders for your small business by bringing employees out of their shells. It can also:
- Decrease turnover
- Boost productivity
- Improve profitability
- Reduce shrinkage (e.g., theft)
- Improve the quality of work
- Decrease absenteeism
If you want to see these positives become a reality at your business and improve employee engagement, try the following six strategies:
1. Recognize achievements
You’ve heard it before: location, location, location. The location of your business is critical to your business’s success. But here’s a new one for you: recognition, recognition, recognition.
Like how location is essential to your company’s success, recognition is key to employee success and engagement. Recognition can make or break your employee retention and engagement.
If you want to increase engagement, recognize employees for a job well done. Say “congratulations” to employees when they reach a goal. Give employees a card for their work anniversary to show that you appreciate them. Take them out to lunch as a thank you for landing that big client.
Don’t let employees’ hard work go unnoticed. Instead, keep an eye out for employees going above and beyond to make your business the best it can be.
2. Create employee-led committees
I think I can speak for many fellow employers when I say that growing your employees into leaders is essential. After all, they are the future of your business. But what does growing leaders have to do with employee engagement?
According to one study, only 19% of organizations are effective at developing leaders. If your business is falling flat in the leadership area and needs a way to improve employee engagement, I have a solution for you: employee-led committees. Committees led by employees are ideal for encouraging camaraderie and showing employees you value their input. Plus, committees can help employees develop valuable leadership skills and keep them involved in your company.
Create an employee-led committee and ask employees to sign up and participate. Chances are, employees are looking for an opportunity to lead. A committee is the golden ticket. Depending on your business, you might even need to create multiple employee-led committees (thus spreading the opportunities for employees).
At my accounting and payroll software company, we have various committees to discuss improving our software, operations, and marketing strategies. We implemented our committees about a year ago, and in only one year, they’ve produced great ideas, boosted engagement, and strengthened teamwork.
Other Articles From AllBusiness.com:
- The Complete 35-Step Guide for Entrepreneurs Starting a Business
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- 17 Key Lessons for Entrepreneurs Starting a Business
3. Host social events
One surefire way to improve employee engagement and foster connections is to host social events in or outside of the workplace. There are endless possibilities for social events. Think food trucks, potluck meals, or raffles at work.
If you want to go above and beyond, think outside of the box when coming up with ideas for activities. Give employees something to talk about by doing things you wouldn’t normally do. Try to do a different activity each time you have an event to keep employees on their toes.
At my company, employees never know when the next surprise is right around the corner. We’ve had a roller rink party, free smoothie day, and chili cook-off, just to name a few. Social events are a way to show employees you appreciate their hard work and dedication to your business. Events give your employees a chance to socialize. Not to mention, it’s important to have a little fun every once in a while.
4. Ask employees for feedback
When customers give you honest feedback, what do you do? Do you just smile and nod? Or, do you use that feedback to better your business? Most businesses answer with the latter. Shouldn’t the same go for employees’ feedback?
If you want to improve and sustain engagement, you have to take your employees’ opinions seriously. Otherwise, your employees could start dropping like flies.
Have employees fill out regular surveys about your business. Some businesses may prefer doing annual surveys. Personally, I like hearing employees’ thoughts and feedback more than once per year. Consider having biannual, semi-annual, or quarterly surveys or reviews. That way, you can stay up-to-date on how your employees feel. And, you can find out how to improve in the future.
When crafting your survey questions, don’t be afraid to find out the truth. If you truly want to pinpoint problem areas and boost employee engagement (don’t we all?), you have to ask the right questions. Ask questions like, What’s your favorite part about working here? Least favorite part? How can we improve in the future?
5. Provide thorough training
If you want to build a culture of trust and improve employee engagement, set your team up for success. To do this, you have to provide employees with proper training to thrive.
From day one, you should have a process for training employees. Your new employees should feel welcome and mesh well with your company culture while learning the ins and outs of your business. An employee’s training and how well they get along with coworkers helps lay the foundation for employee engagement. If workers find themselves struggling to keep up or feel left behind, it can spell doom for engagement going forward.
6. Give individual attention
Paying attention is critical in all aspects of business. You have to pay attention to your competition, threats, finances, and—you guessed it—your employees. If you want employee engagement to be prominent in your small business, pay attention to your employees.
Think of your employees as plants. If you give them attention and feed them the right resources, they will flourish. But if you don’t accommodate their individual needs, they may start wilting.
Each employee has different needs and motivators. Keep up with your employees’ needs and find out what makes them tick. You can use performance reviews, meetings, or even small talk to learn more about an employee. Take advantage of performance reviews to see where each employee stands and whether you’re meeting their individual needs. Be sure to use their feedback to better engage going forward.
The more you get to know an employee individually, the better engagement you will have.
RELATED: These 13 Employee Perks Weren’t Such Great Ideas After All
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The DOL Proposed Overtime Rule: Will Your Company Be in Compliance?
By Tonya Fletcher
Earlier this year, the U.S. Department of Labor (DOL) published a proposed rule that would make nearly a million workers eligible to receive overtime pay. The proposed rule is for white-collar exemptions to overtime, which refers to employees with duties that primarily involve executive, administrative, or professional responsibilities as defined by the regulations.
Currently, employees with a salary of less than $23,660 per year ($455 per week) must be paid overtime if they work more than 40 hours per week. The proposed rule published by the U.S. Department of Labor would raise the salary threshold to $35,308 per year ($679 per week).
It’s important to note that this proposed rule does not change overtime protections for police officers, firefighters, paramedics, nurses, or laborers which include non-management production line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers.
Overtime regulations can be confusing. In summary, the Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record keeping, and youth employment standards affecting employees. Employees must be paid at least the minimum wage, and are entitled to overtime unless they are classified as exempt. To be exempt from overtime, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If an employee is paid less or does not meet the duties tests, they must be paid one and a half times their regular rate for working more than 40 hours in a workweek.
It’s important to not wait until the rule is finalized to begin reviewing your practices. Some common mistakes are misclassifying employees, withholding pay, and miscalculating overtime. According to data from the DOL, the most common violators were employers in the retail, construction, and food services industries. Let’s take a look at these common compliance mistakes.
1. Misclassifying employees
An exempt employee means he/she is exempt from the minimum wage and overtime provisions of the law. These positions usually include supervisory or management roles, but can include other roles depending on the industry or specific job duties. To be classified as exempt, the employee must meet both the salary and the duties test, which means they must:
- Be paid on a salary basis
- Earn at least $455 per week now, but $679 per week with the new proposed rule
- Be paid the full, agreed-upon salary for any workweek in which they perform any work
The proposed DOL overtime rule doesn’t include any changes to the job duties that classify employees. Exempt employees aren’t entitled to overtime pay, but can’t be paid less than an agreed upon salary.
Non-exempt employees are entitled to overtime pay. To ensure non-exempt employees are being paid correctly, keep track of all hours worked, pay overtime when applicable, and pay at least minimum wage. Also, remember that a non-exempt employee can receive a salary and still be entitled to overtime pay.
Some states also have requirements that have higher minimum salaries and/or more stringent duties tests than the FLSA. If you have employees in multiple states, you must comply with the FLSA and requirements in each state where employees work.
Misclassifying employees as exempt can be a very costly mistake. Consider this: In a typical wage and hour lawsuit, an employer could end up paying back wages and damages equal to the amount of the back wages, fees to an attorney to represent them, as well as the employee’s attorney fees. This is why you should make sure your employees are properly classified, and since responsibilities can change, regularly review exempt employees to make sure they continue to meet the duties test that applies to their position.
Other Articles From AllBusiness.com:
- The Complete 35-Step Guide for Entrepreneurs Starting a Business
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- 17 Key Lessons for Entrepreneurs Starting a Business
2. Withholding pay
Employers must pay employees for hours worked in the workday, which means all hours between the time someone begins and ends work on a particular day. If this employee’s workday extends beyond his or her normal shift hours, they must be paid for that extra time—even if it wasn’t authorized.
All time spent by an employee performing activities which are job-related is potentially work time, even “off the clock” job-related activities that benefit the company. Types of compensable work time include:
- Mandatory training or meetings
- Time that includes waiting to receive job assignments for the day or time spent putting on and taking off safety gear
- Working through an unpaid meal break
- After hours or outside work, like requiring employees to check emails or take calls after hours
- Travel from office to the first work site of the day if a stop at the main office or jobsite is required before starting work for the day.
Additionally, private sector non-exempt employees covered by the FLSA must be paid for all overtime hours worked and are not eligible for “comp time,” and even if an exempt employee works part-time they must be paid the minimum salary of $455 per week ($679 per week with the proposed rule). Deductions from an exempt employee’s salary are permitted in only a few limited circumstances.
3. Miscalculating overtime
The FSLA states that overtime is one and a half times the regular rate of pay. The regular rate is defined as total compensation divided by the total hours worked. If an employee has two or more different types of work for which different straight-time rates have been established (for example, $10/hour for one type of work and $12/hour for another type of work), the regular rate is the weighted average of such rates. If the employee receives a non-discretionary bonus or commission, that additional pay must be included in total compensation for purposes of calculating overtime pay.
Though there is still time before the proposed overtime rule is expected to go into effect, it’s important to review current employee classifications and pay practices for compliance. Then, review the potential impact of these regulatory changes and develop a plan to comply with the new regulations.
RELATED: Five Ways Your Business May Be Violating Employment Law
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Saturday, July 27, 2019
Video SEO: 5 Ways to Optimize Your Videos for Search Engines
By Brianna Pyne
If video isn’t already an integral component of your content marketing strategy, then you may already be falling behind the curve. According to the Cisco Visual Networking Index, video is forecasted to account for 80% of all internet traffic in 2019. This means consumers are more than ever relying on video for information on potential products and services they intend to purchase. Brands are cognizant of this dynamic too.
But simply recording and posting videos on your web page isn’t going to immediately start attracting large volumes of traffic. You also need to implement video SEO.
What is video SEO? Video SEO is similar to its text cousin, and refers to the practice of optimizing your videos to be indexed and ranked on search engine results pages (SERPs) for your relevant keywords. However, it’s getting increasingly competitive out there. As more businesses hop on to the video bandwagon, you’ll note there’s an array of new content competing for the same keywords and search queries.
To make your videos SEO friendly, try to incorporate these best practices so that you stand out from the crowd:
1. Focus on content
While your objective when publishing a video is to rank on search engines, this cannot override the quality of the reel itself. The content of your video must be highly engaging, likable, and shareable. Spend time crafting your storyboard and use advanced editing software like Adobe Premiere Pro to make it stand out. The better your video is received by audiences, the higher it will rank on search engines.
Try to ensure the video has a key takeaway that elicits an emotional reaction with your target customer. This will compel them to tweet about it, share it with friends and family, or just play on repeat.
The viral Dollar Shave Club introductory video attracted 600,000 views in its first two days with almost 5,000 orders. It helped catapult the brand into a household name, catching the eye of several top-tier investors, too. Now that’s the power of an effective video marketing strategy.
2. Craft a snappy title and description for your video
“On the average, five times as many people read the headline as read the body copy.” This timeless advice from David Ogilvy, the guru of modern advertising and copywriting, should be ingrained into your marketing ethos. Don’t make the mistake of thinking it only applies to a content-heavy post.
A stimulative and snappy video headline is the difference between a potential lead clicking on your video or ignoring it for the competition. Spend some time brainstorming a few headline possibilities, and elicit feedback from your team members before settling on one.
The same principle applies for the meta description of the video. Try to add in relevant keywords so that search engines understand what the video is about. This makes indexing easier and should help bring in more relevant traffic to your site.
Other Articles From AllBusiness.com:
- The Complete 35-Step Guide for Entrepreneurs Starting a Business
- 25 Frequently Asked Questions on Starting a Business
- 50 Questions Angel Investors Will Ask Entrepreneurs
- 17 Key Lessons for Entrepreneurs Starting a Business
3. Publish on multiple platforms
You may not be convinced about publishing your videos on platforms like YouTube and Facebook, but the fact is these platforms rake in almost 4 billion combined users every month. That’s a sea of traffic you can’t afford to lose out on.
We understand when potential customers view your video on another platform, there’s no guarantee they will eventually navigate to your site. However, you can try to nudge them in your direction by creating backlinks to your web page, in both the video description as well as the profile pages.
You should definitely post videos on your site, too, but don’t lose out on the billions of searches taking place every day on other platforms.
4. Optimize for mobile
Web search and browsing on mobile overtook desktop traffic in 2016 and shows no signs of slowing down. And Google itself announced it would be placing a high priority on mobile-optimized sites when it comes to determining search rankings.
If you’re not adopting a mobile-first strategy then you may be penalized in the SERPs—that’s something you want to avoid at all costs. Make sure your developers are aware of this. If you rely on hosting services, many of them automatically offer mobile optimization.
5. Add video transcriptions
Google’s crawler scours the web, reading text to determine site content. Attaching a text-based transcription on your video page will help search engines to index the content. You could also go a step further and add a few keywords in your transcription to make the job even easier for the crawler. That would help muscle out the competition.
RELATED: Low-Cost Ideas for Using Video in Your Content Marketing
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Friday, July 26, 2019
12 Key Issues for SaaS Startups Seeking Financing
By Mitch Zuklie and Richard D. Harroch
SaaS (Software as a Service) companies, are attracting some of the top talent and top funding in technology today. The most notable SaaS companies occupied seven of the top 10 verticals by venture capital deal activity recently, and three of the top 10 by investments. Venture investment is running ahead of last year’s pace, which was more than double the volume of each of the prior three years.
SaaS is being applied to solve all kinds of problems, such as monitoring and security, business intelligence analytics, accounting and finance, healthcare, HR and workforce management, customer relationships, and advertising, sales and marketing. Altogether, revenue for SaaS companies is predicted to grow 17%, generating an $85 billion market.
From an investor perspective, there is a lot that is attractive: scalability, ease of approach, recurring revenue streams, and high gross margins.
So, what does it take to stand out from the pack and get your SaaS company financed? The following is a checklist to help you succeed in raising venture capital, seed, or angel financing.
1. A Great Investor Pitch Deck Is Essential
Raising capital from investors is difficult and time consuming. Therefore, it’s crucial that a SaaS startup absolutely nails its investor pitch deck and articulates a compelling and interesting story.
Here are some pitch deck tips:
- Tell your story in 15 to 20 slides. (If you can’t tell the story with brevity, you can’t tell it well.)
- Explain why the market opportunity is large–and where you fit in.
- Describe the talent on your team. Many investors are skeptical of single-founder startups. While there are notable exceptions, they are rare. Startups are a team sport. SaaS is no different in this regard.
- Where possible, tell your story visually.
- Don’t provide excessive financial details. Hit the key indicators and save the rest for follow-up.
- Don’t try to cover everything in the pitch deck. Your in-person presentation will give you an opportunity to add and highlight key information.
- Use plain English–jargon or acronyms distract from your story.
- Don’t underestimate or belittle the competition.
- Make sure your information and metrics are up to date.
- “Look and feel” matters. Think of it as your investor interface, and consider getting professional graphics help.
- Review other pitch decks for ideas on presentation.
- Be sure to include the following wording at the bottom left of the pitch deck cover page: “Confidential and Proprietary. Copyright (c) by [Name of Company]. All Rights Reserved.” This helps protect your intellectual property.
- Send the pitch deck in a PDF format to prospective investors in advance of a meeting. Relying on Google Drive, Dropbox, or some other online service just puts up a barrier to the investor actually reading it.
For additional guidance, as well as templates, see How to Create a Great Investor Pitch Deck for Startups Seeking Financing.
2. Can You Get Angel Investors for Your SaaS Startup?
Angel investors invest in early stage or startup companies in exchange for an equity ownership interest. The typical angel investment is $25,000 to $200,000 but can go much higher.
- Angel investors particularly care about the quality of the management team and how big the market opportunity is.
- Angel investors want to understand the big problem you are attempting to solve. They like to see a clearly articulated elevator pitch for the business, an executive summary or slide pitch deck, a beta version of the SaaS offering, evidence of early traction, and support as to why there will be a large demand for the service.
- Angel investors run the gamut from friends and family to professional angel investors.
- You can find angel investors through attorneys, other entrepreneurs, angel investor networks (such as AngelList), venture capitalists, investment bankers, and crowdfunding sites like Kickstarter and Indiegogo.
- Don’t bother asking angel investors to sign a non-disclosure agreement—most won’t do it, and it will only slow down the process.
There are a number of good articles on the subject of angel investing, including:
- Angel Investing: 20 Things Entrepreneurs Should Know
- 50 Questions Angel Investors Will Ask Entrepreneurs
- The 10 Commandments for Obtaining Angel Funding for Your Start-Up
3. Venture Financing for SaaS Startups
After a round of angel financing, SaaS startups often seek the financing and support of a venture capital firm. VC firms provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more. In exchange, venture investors will typically obtain a preferred equity position in the company, seats on the Board of Directors, veto rights, anti-dilution rights, and a say in how the business is to be run.
Here are some key things to know about venture capital financing:
- Venture capitalists typically focus their investment efforts on specific industry sectors, on stages of a company’s life (early stage seed or Series A rounds, or later stage companies that have achieved meaningful revenues), and geography (e.g., Bay Area, SoCal, New York, Boston, or Santa Monica). Know the firm’s focus before you approach it.
- Valuation of the company will likely be one of the main issues and it is negotiable; there is not one “correct” valuation methodology or formula to rely upon.
- A venture capitalist who is interested will submit a non-binding “term sheet,” which will set out the key terms of the proposed investment. Experienced corporate counsel should be engaged to help navigate and negotiate on the issues.
- The amount of control and Board seats will be important for both the entrepreneurs and the venture capitalists.
- The venture investors will insist on anti-dilution protection and the right to participate in future rounds of financing.
- Venture investors will perform extensive due diligence before consummating the investment (a venture financing process could take 30 to 90 days to close).
- The venture investors will want to make sure the founders have incentives to stay and grow the company and will likely request that the founders’ shares become subject to vesting based on continued employment (and then become “earned”).
- After a financing is completed, venture investors will often hold a minority interest in the company. However, they will typically insist on “protective provisions” (veto rights) on certain actions by the company that could adversely affect their investment or their projected return.
There are a number of comprehensive articles on the venture capital financing process, including:
- A Guide to Venture Capital Financings for Startups
- 65 Questions Venture Capitalists Will Ask Startups
- 28 Mistakes Entrepreneurs Make When Pitching to Investors
4. Show That the Market Opportunity Is Substantial
Investors want to invest in big opportunities with large addressable markets. Make sure you are able to:
- Define the initial market you are in and its dollar value.
- Show that your company will be positioned to capture a large part of the total addressable market.
- Consider other markets that your company’s services can address beyond your initial market.
- Consider markets your service can “unlock” for strategic partners in other industries.
Phil Dur, the co-founder of PeakSpan Capital, a venture capital firm investing in SaaS companies, states:
“One of the more significant determinants of company value obviously is market opportunity. If you are performing well, and in a rationale competitive dynamic in a market that ‘matters’ to a lot of customers, you’re likely to see this reflected back in the valuation ascribed to your business. Don’t hide the ball! Be forceful and clear about the attractiveness of the market opportunity you are pursuing.”
5. SaaS Business Model Issues
Investors are particularly sensitive to a number of key business model issues inherent in SaaS companies, including:
- With so many SaaS offerings out there, how can you get noticed and be differentiated?
- How long is the sales cycle?
- How easy is the onboarding process for new customers?
- Can the company find a scalable way to acquire users?
- How can churn be mitigated?
- Can the long-term value of the customer be increased over time, while decreasing the cost of acquisition of a customer?
- Is the service user-friendly enough?
- What level of customer support is necessary to ensure customers are satisfied?
- What ongoing product improvement costs will the company face?
- Can the company manage a significant growth in users from a technical standpoint with acceptable financial consequences?
Is the subscription management/fees process easy and efficient? (Some companies build their own subscription management solution; others use a third-party platform such as Apptus.)
6. Intellectual Property and Technology Issues for SaaS Companies
SaaS investors are particularly interested in a company’s software, technology, and underlying intellectual property. The questions the investors will pursue include:
- How differentiated is the company’s software?
- What competitive advantages will there be over existing SaaS offerings?
- How easy will it be to replicate the company’s offering?
- How costly will it be to fully build out, maintain, and enhance the offering?
- What key IP does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
- How was the company’s IP developed?
- What comfort is there that the company’s IP does not violate the rights of a third party?
- Is the IP properly owned by the company, and have all employees and consultants assigned the intellectual property over to the company?
- Would any prior employers of a team member have a potential claim to the company’s IP?
- If the IP was developed at a university or through government grants or with open source technology, does the company have the right to use the technology?
See 10 Intellectual Property Strategies for Technology Startups.
7. Make Sure You Understand the SaaS Competitive Landscape
The company’s competitors will always be an issue for investors, as some investors believe the SaaS marketplace is oversaturated in some subsectors. You will need to be prepared to answer the following questions:
- Who are your company’s chief competitors?
- What gives your company a competitive advantage?
- What are the key differentiating features of your offering?
You must show a thorough understanding of the current competitive landscape and be prepared to answer questions about your competitors. If you don’t fully understand your key competitors, the investor may conclude that you really don’t understand the market. Your competitors will often be large, well-capitalized companies, so expect the inevitable question about how you can reasonably compete with bigger players.
8. What Traction Have You Obtained?
A company that has obtained early traction will be more likely to obtain investor financing and with better terms. Here’s how you can demonstrate it:
- The creation of a beta or minimally viable offering
- Initial or pilot customers
- Strategic partnerships
- Customer testimonials
- Admission into competitive programs such as Y Combinator or other technology accelerators or incubators
- Early press or social media buzz
An investor will probe into what has driven these successes and how they can be accelerated and scaled.
Andy Thompson, CEO of the San Francisco SaaS company Safehub, which monitors the structural integrity of buildings and gives real-time alerts to building owners, states:
“We found it extremely important in our presentation to investors that we were able to show them a working demonstration of our SaaS dashboard, and that we were able to show initial customer pilots. Plus, we were admitted to the accelerator program at Bolt in San Francisco. This allowed us to raise a significant first round of financing.”
9. The Key Financial Metrics for SaaS Companies
Here’s what you should provide:
- Monthly Recurring Revenue (MRR)—For SaaS companies primarily with monthly subscription contracts, show MRR. It has the following three components:
- New customers added in the month
- Existing customers that have terminated their subscription
- Increased revenues from existing customers who have expanded their subscription
- Annual Recurring Revenue (ARR)—If you offer yearly or multi-year subscriptions, the primary focus is on ARR.
- Annual Contract Value (ACV)—Annual Contract Value is the average annualized revenue per customer contract. For example, if the company had one customer under a three-year contract for a total of $30,000, the ACV would be $10,000. This is the average across all customers.
- Lifetime Value of a Customer—What is the lifetime value of a customer? Obviously in the early days of a startup this will be hard to quantify. But it is important to project the potential lifetime value of a customer to assess marketing costs and customer profitability.
- Gross Margins—Gross margin is the company’s net sales revenue minus its cost of goods sold. This represents the amount of sales revenue left over after the company has incurred the direct costs of producing the SaaS product.
- Cash and Cash Flow Burn—SaaS companies often face significant losses in the early years, resulting in an associated cash flow problem. And the faster the growth, the greater the cash flow problem. So, SaaS companies have to carefully consider their burn rate and capital requirements. Entrepreneurs must continually monitor their cash position and changes in cash position.
- EBITDA—Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is often used to measure a company’s operating performance, without factoring interest costs, taxes, or accounting adjustments.
- Customer Churn—The churn rate is the rate at which the company is losing customers. A high churn rate can show that customers are not satisfied with the product or not finding enough value for the cost.
- Customer Funnel Metrics—How many raw leads or inquiries for the product is the company getting a month? How many of those are converting to paying customers? What lead sources are the most profitable? How does the company increase leads?
- Customer Acquisition Cost—What is the average cost to acquire a customer? Be careful not to underestimate these costs.
Ideally, you will develop an online dashboard that allows you to easily monitor and report these key metrics.
And make sure you are learning from these metrics—and learning fast. Boards and founders often are very slow to react to slowing sales traction, taking a few sales cycles to diagnose a problem, and then more time to find a solution. The problem is typically the product, the sales team, or marketing. It’s best to figure out the problem very quickly.
Dean Stephens, the CEO of San Francisco-based SaaS health company Talix, Inc., states:
“SaaS financial and operating metrics provide powerful insight into product and company performance. Without such knowledge, leadership teams are blind. With it, we can make timely changes in sales, marketing, product, and other investments. And this metrics tracking should not be an expensive overhead cost to maintain. Today’s off-the-shelf reporting tools should link accounting, budgeting, contracts, sales and marketing activities, and customer success into a lean, smart reporting infrastructure.”
10. Are the Company’s Financial Projections Realistic and Interesting?
If a SaaS company presents investors with projections showing the company will achieve $3 million in ARR or revenues in five years, they will have little interest. Investors want to invest in a company that can grow significantly and become an exciting business. Alternatively, if you show projections in which the company predicts to be at $500 million in three years, the investors will just think you are unrealistic, especially if you are at minimal revenues today. Avoid assumptions in your projections that will be difficult to justify, such as how you will get to a 400% growth in revenue with only a 20% growth in operating and marketing costs.
In order to believe your financial projections, investors will want you to articulate the key assumptions you have and convince them those assumptions are reasonable. If you can’t do that, then the investors won’t feel you have a real handle on the business. Expect that investors will push back on the assumptions and that they will want you to have a cogent, thoughtful response.
11. The SaaS Customer Agreement
Investors will want to see your customer agreement. It should include:
- A limited non-exclusive right for the customer to use the service in compliance with the terms of the agreement
- The term of the license (month-to-month or year-to-year is the typical term)
- Pricing for the service
- How the contract gets renewed (such as by auto renew)
- Termination rights by the subscriber and the company
- Intellectual property rights ownership retention by the company
- Limited representations and warranties by the company, and disclaimer of any other representations and warranties
- Service levels
- Maintenance and support obligations
- Limitations and exclusions of liability
- Data security and privacy provisions
- Limited indemnification protection
- Dispute resolution procedure (such as by arbitration and excluding the right to bring class actions)
- Force majeure clause
This is an area where a tech transactional lawyer can provide real value—and help you sleep at night.
12. Legal Issues for SaaS Startups
Finally, investors will look at several more questions to ensure your house is in order from a legal perspective:
- Has the company been properly organized? (Most investors prefer investing in corporations, not LLCs.)
- Is the company paying attention to data privacy and cybersecurity issues? Is it in compliance with GDPR and other applicable federal and state laws? Is it CCPA ready? If it’s healthcare-focused, is it HIPAA compliant?
- Has the company complied with applicable securities laws when issuing stock or options in the company?
- Has the deal with co-founders been made clear, especially if one founder were to depart the company?
- Is the company in compliance with employment laws? Does it have appropriate policies in place, such as those prohibiting sexual harassment? Has it obtained all appropriate employment documents from employees?
- Are all employees and contractors required to sign Confidentiality and Invention Assignment Agreements?
- Is the company taking appropriate steps to legally protect its intellectual property?
- Are key tax considerations taken into account?
- Does the name of the company or its service pose any trademark issues, domain name problems or other issues?
- Should the
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