Valley of Death

The common expectation from those who may have experience building startups, but have not built SaaS startups, is that you can generate income from day 1. The reality is that after you have built your SaaS solution, you should expect years of hard times in the Valley of Death before you have gained the traction needed to succeed.

People tend to look at a great success like ex. Slack, which everyone “found” and started to use around 2015. Most people saw this as a brand new tool, just created, but they forgot that Slack started building their product many years ahead.

• Slack started development in 2010.

• Slack was launched to the public in 2013.

• Slack gained success as a business in 2014.

And this is fast. Very, very fast! Slack only achieved this level of traction, because the SaaS was spot on the market with the right features at the right time. And they used 3 years of development to achieve this.

An earlier example is Facebook, which started development in the early 2000s. In 2003 it was launched as an MVP called Facemash. In 2004 it launched as Facebook only for university students (the onboarding phase). In 2006 it launched as Facebook for everyone – after 2 years of onboarding. If your SaaS requires the onboarding of providers/ambassadors before selling, the onboarding phase always takes significantly longer than any founder expects!

Being spot on the market release is very rare, and requires both skill, experience, and luck. Even the most experienced fails now and again. Therefore 3-5 years in the Valley of Death is the realistic approach and you are losing money in these 3-5 years!

Expect 3-5 years in the Valley of Death

It is called the Valley of Death, because the inexperienced founders of startup companies die in the valley because they have not planned 3-5 years ahead.

If you are not prepared for 3-5 years in the Valley of Death, you are likely to fail. Do not start until you are prepared and can afford to spend 3-5 years in the Valley of Death before you achieve success as a business.

With a contract with a Tikweb Tech Team, you are ensured that your SaaS lives and continues to develop the new features your new customers demand through the Valley of Death. But you still need to be prepared to fund yourself in the hard years ahead.

The steps and phases

• Research: Find the opportunities, validate your ideas as MVPs

• Development: Build the system/app

• Launch: Put the product on the market

• Commercialize: Onboard providers and/or ambassadors and find your revenue model

• Earn money: Sell, sell, sell!

Remember that by-product launch, you may need to onboard providers or ambassadors before the real sales and marketing may start. Remember this very time-consuming process in your timeline.

SaaS Terms

• MRR – Monthly Recurring Revenue
  The amount of revenue you earn each and every month is called MRR. In a SaaS subscription service, even without a sales group, this should increase steadily.
  Rule of thumb: To attract investors, MRR should grow by 10% each month.

• LTV – Lifetime Value
  LTV represents the gross income you earn from any customer. If a customer is subscribing monthly for 36 months for $10 a month and you have a gross margin of 90%, then the lifetime value of the customer is 36*$10*0.9 = $324.

• CAC – Customer acquisition cost
  CAC is the price it costs to gain a customer, usually through sales and marketing expenses.
  Rule of thumb: LTV/ CAC of at least 3:1 will assure investors that they will have a solid ROI.

• Churn
  The churn is the percentage of customers leaving your SaaS. Keep the % very low to assure investors your SaaS is solid.

• Monthly Burn
  Until you achieve success as a business, you are losing money each month, referred to as a monthly burn. Burn rate is high in the SaaS development phase, and even higher when sales and marketing efforts begin.

• Runway
  Runway tells you how long it will take before your company runs out of money. Calculate runway by dividing your money by your burn rate.

• ROI – Return On Investment
  The ROI factor is calculated as Net income / Investment.

Accounting Terms

• Revenue / Gross Sales / Sales / Turnover = The total amount of sales

• Net sales = Gross sales minus customer discounts, returns, and allowances

• Gross profit = Net sales minus cost of goods sold and production employee salaries

• Gross margin = The Gross profit as a percentage

• Operating profit = Gross profit minus total operating expenses (incl. staff salaries)

• Net profit = Operating profit minus taxes, interest