You are dead right. It’s very funny that you mention that as for the whole of the Thanksgiving weekend I have been working on an Excel spreadsheet model that makes exactly that point (year up front billings). It will be the subject of my next blog post, with a title something along the lines of SaaS Economics.

Thanks for your support!

First, thanks for replying to my post. Second, you have a great blog, now part of my frequently checked rss feeds.

In Marc Benioff’s book about Salesforce.com they moved from a monthly billing rate to an annual rate, because they were getting killed by cash flow. If you can convince customers to go this way then they can fund sales and marketing growth including paying for sales commissions. I would also argue that sales should also be scaled carefully since sales and marketing strategy needs to be flexible and experimentation should be encouraged.

I am looking forward to your next post.

Certain types of businesses can be scaled without needing VC money. There are two important attributes of this kind of business:

1. They can develop the product for a very small amount of money. Given free Open Source software, and cloud computing that is becoming more and more common.

2. They can acquire their customers without having to spend a lot of money. And what money they do have to spend is immediately recovered from the sale to the customer.

Usually those are consumer internet web sites, and B2C businesses that have figured out how to sell their products or services without using a sales force.

The problem that most companies run into is that as soon as they want to scale, they find that they need to invest money into marketing/sales which is not immediately recovered from sales to customers. That requires additional funding.

If you are lucky enough to have a business that can be scaled in such a way that the money you make from customers pays for the scaling, then you will not need VC funding., or at least be in a position to delay it to get a better valuation.

I do have more on this topic in a blog post on my web site called Startup Killer. I also am in the middle of writing a post that provides a spreadsheet for SaaS businesses allowing the founder to model exactly the scenarios raised by this question. Look for that to be published shortly.

Best, David

Thanks, David

See below for my full reply. A big part of the problem here is that I had originally written this as a single article, with the title :”How to set the Startup Accelerator Pedal”.

I can easily see that a reader of just the first part, seeing the title it has, might not recognize the true intent of the entire article, which was to add to the writings of people like Steve Blank with another parallel topic.

Best, David

I am a fan of Customer Development, which you can tell from this article. My goal with this article was actually to layer another discussion on top of what Steve Blank, Eric Ries, and Ash Maurya talk about, which is how a startup CEO should think about setting the accelerator pedal while going through these different stages. While I have not had the time to read all of their material, I have never seen that particular topic discussed by any of the three of them.

That new layer (setting the startup accelerator pedal) was the primary goal of this series of posts. I have seen it done wrong more commonly than right. And when done wrong, it usually leads to disaster for the company. So I felt it was important enough to add to the many valuable topics they have brought to the startup community.

I probably should have mentioned, Steve, Eric, and Ash as individuals that have pioneered great thinking in the customer development area, and given them credit for that. However one reason that I didn’t was that I do see the second phase that I laid out here differently to them, and did not want to have these three phases confused by Steve’s four steps.

I hope you still received some value from the discussion around where to set the accelerator pedal on top of what has been previously discussed around Customer Development.

Best, David