Following the Money: Hiten Shah Part 2

Hiten Shah, Co-founder & CEO of FYI, spoke about “What the Future of SaaS Means For Your Product Strategy” at this year’s SAAS NORTH NOW virtual conference.

Shah has been building software companies for 15 years and is well known for Crazy Egg and Kissmetrics.

His presentation focused heavily on the rise of all-in-one SaaS and how you can learn from past companies. If you haven’t read part one, click here: https://saasnorth.com/the-importance-of-understanding-past-and-present-saas-products-hiten-shah-part-1/

Follow the Money

Shah explained that if you continue to follow the money, build out features, create a suite of tools, help departments work together and go really deep into a sidekick strategy, you will retain your customers longer.

“All these companies are basically aiming to have a minimum ACV (Annual Customer Value) of $10,000 per account per year. That’s the reason why they’ve introduced so many new features and so many new things, in order to get closer and closer to this target and increase the amount that they’re able to get per year per customer.” he said during the session. “It’s all about working backwards to successful SaaS companies and figuring out how much they charge, what are the bands, what it looks like, and it turns out that the majority of companies that have hit $100 million in revenue charge $10,000 a year or more per customer.”

For example: If you are charging $100 per month it will take a long time to reach $100 million ARR (Annual Recurring Revenue). Shah recommended that if you wanted to reach that goal of $100 million in ARR, your pricing needs to reflect that fact.

“When you follow the money this is the answer you get: we require continuous value delivery to our customers when we build SaaS products” he said. “We have to orient everything around that including our value proposition, narrative and our story.”

Deer, Rabbit and Elephant Customers

During his session, Shah dove into research conducted by Christoph Janz about the 5 Ways to Build a $100M Business.

“When I think about most things in life, it goes back to this idea of following the money.” Shah explained. “And so if you follow the money on SaaS businesses, you learn this statistic that most $100 million plus ARR SaaS companies target deer or elephant customers.”

Deers

Deer customers are not big enough to make demands that might steer you away from your company’s strategy, but they’re big enough that you don’t need a lot of them to make money.

“This means they’re targeting customers in the range of $10,000-$100,000 per year in terms of how much those customers pay them now.” said Shah.

Elephants

Elephant customers will push you around. These kinds of customers are similar to Microsoft, Google, and Apple – meaning they will pay you millions of dollars for your products.

These kinds of customers are the ones every startup dreams of.

Rabbits

These are the price conscious consumers who won’t pay you much for your product. Volume is key if you’re hunting rabbits:

“They basically say that many companies that start with rabbit customers go upmarket to get to go beyond $10-$20 million ARR. Not all of them, but most.” Shah said.

Power Users are Critical

“One way to approach the new world of SaaS is this concept that power users are now a market.” said Shah.

A power user is a user of computers, software and other electronic devices, who uses advanced features of computer hardware, operating systems, programs, or websites which are not used by the average user. Typically one who uses software for professional purposes.

“We used to call them prosumers but a lot of the time these people are actually using these tools for work, so I’d call them power users,” explained Shah. “Prosumers are people who are using things more personally and are kind of willing to pay for tools – this is more so work related from what I can tell – and the companies who are most successful are those that are targeting folks at work.”

Shah flipped to the next slide to discuss how newer SaaS email services such as ClockWise, SuperHuman and Hey are prime examples of tools created for power users.

“The people who use Hey are not the same people who use Superhuman and that’s my point when I say there’s a SaaS for pretty much everyone.” he said.

He stressed on the strength of power users and explained that one of the newer trends he’s noticed in SaaS is how a lot of companies are actually building for power users, and when they build for them they are not targeting that $10,000 per customer per year mark.

“There are millions and billions of people who use email and some percentage of them are power users – a significant enough percentage that multiple products can exist in the market and target those people –  which is kind of where we’re at today.” he stated. “You can target them in different segments and slices and that’s strategy I’m seeing a lot of folks starting to use – and I think we’re going to see this more going forward too.”

Shah concluded the presentation with this note:

  1. SaaS saves companies money
  2. SaaS ACV target $10,000+/account/year
  3. SaaS businesses are feature factories that print cash
  4. SaaS requires continuous value delivery
  5. SaaS is all about incremental baby steps

“Regardless of what role you’re in, you can apply all these principles.” said Shah. “Remember, what’s good for customers is ultimately good for business.”

Don’t forget that if you attended this year you get $100 off next year’s ticket!

AND if you attended this year’s conference check out TechExit and use your discount code (SAAS NORTH) here: https://techexit.io/