Byron Deeter of Bessemer Venture Partners has a great post on SandHill.com with the Ten Laws for Being Saas-y. Required reading for anyone running a hosted software company or debating whether to jump on the software-as-a-service bandwagon. His ten laws (details on his post) are:
1. Your key business metrics are: CMRR (Contracted Monthly Recurring Revenue) and Cash – “Bookings” is for suckers.
2. It takes at least $300K of CMRR to climb the Sales Learning Curve – Stop at three sales reps until at least two of them are making $100K MRR quotas.
3. Separate your “hunters” and “farmers” – As soon as you’ve climbed the Sales Learning Curve, begin ramping your sales force by hiring renewal-oriented account managers. Keep the hunters moving, and let farmers tend to the crops.
4. It’s a whole new ecosystem – Channels are very hard for SaaS companies to build, so don’t base your plan on SIs and traditional ISVs. You will need to sell directly for a long time.
5. Stay local – Prove your business in North America first. Only after reaching $1M in CMRR should you consider hiring European sales and services execs behind customer demand. Save Asia for post-IPO.
6. One datacenter – Invest early in backup and disaster recovery, but stick to one data center, at least until well after IPO.
7. Single instance, multi-tenant – Have only one version of the code in production. Really. “Just say no” to on-premise deployments.
8. By definition, your sales prospects are online – Savvy online marketing is a core competence (sometimes the only one) of every successful SaaS business.
9. Constantly trade off cash vs. growth – If you must replenish supplies while still crossing the desert, optimize your growth rate (sales rep recruitment and marketing spending) so that you maximize your recurring revenue run rate when you need to fundraise next.
10. Be prepared to cross the desert – SaaS requires R&D and sales expense up front for a multi-year stream of revenue, so it demands enough investment capital to fund 4+ years of runway. Load up for the long trip and pace your consumption of calories!