Reporting Live from the Ramp of Death

Lying on the beach and enjoying the 4-hour work week: who wouldn't like the recurring revenue stream of a SaaS business? It's why many start building a SaaS company "on the side", only to find out they don't make enough money to buy a latte and fall back to getting paid by the hour. They're stuck on the long, slow Ramp of Death.

Coming to you live from the trenches of running an organically growing SaaS for five years, this is an honest –and sometimes brutal– story of perseverance, sacrifice and reward. Find out how to overcome the ramp, and why it isn't as bad as you might think.

Transcript

1. Reporting Live from 
 the Ramp of Death. 2013 ? 2014 ? 2015 ? 2016 ? 2017 ? 2018 ? Or: How we survived the Long Slow Ramp of SaaS Death
2. REPORTING LIVE FROM THE RAMP OF DEATH A day in the life.
3. REPORTING LIVE FROM THE RAMP OF DEATH What’s SaaS? Software as a Service, usually with a recurring billing model.
4. REPORTING LIVE FROM THE RAMP OF DEATH
5. REPORTING LIVE FROM THE RAMP OF DEATH What’s the Long Slow Ramp of Death? The excruciating slow climb the revenue of a SaaS business takes at the start.
6. REPORTING LIVE FROM THE RAMP OF DEATH
7. REPORTING LIVE FROM THE RAMP OF DEATH Why am I here talking about this? This is RailsConf right? Where’s the code?
8. REPORTING LIVE FROM THE RAMP OF DEATH ways to make money as a developer 4
9. REPORTING LIVE FROM THE RAMP OF DEATH Work as an employee. Never tried this 1
10. REPORTING LIVE FROM THE RAMP OF DEATH Work as an employee pros :) • You always get paid, stability • You can find a place with awesome colleagues you can learn from • You can get a mortgage • You usually don’t have to make all your own decisions
11. REPORTING LIVE FROM THE RAMP OF DEATH Work as an employee cons :( • You're usually not making all your own decisions • You cannot always determine who you work with • You're not going to become financially independent Unless you have good timing and luck
12. REPORTING LIVE FROM THE RAMP OF DEATH Work as a freelancer Tried this a bit 2
13. REPORTING LIVE FROM THE RAMP OF DEATH Freelance pros :) • You can make a very good income in the current market • Move around between projects
 if that's what you like
14. REPORTING LIVE FROM THE RAMP OF DEATH Freelance cons :( • You have to sell yourself well to get fully booked at good rates • Move around between projects
 if that's what you don't like • Can be hard to find clients that have a decent technical foundation and/or team in place
15. REPORTING LIVE FROM THE RAMP OF DEATH Client services firm Did this for years! 3
16. REPORTING LIVE FROM THE RAMP OF DEATH • You get projects from clients • They pay you per deliverable or hour • You do the work and bill it Client services business model
17. REPORTING LIVE FROM THE RAMP OF DEATH Client services pros :) • You get paid for your work pretty fast • Pretty good money at a small scale • Good money at a large scale
18. REPORTING LIVE FROM THE RAMP OF DEATH Client services cons :( • Horrible money at a medium scale • The little inefficiencies add up when you grow • But most importantly..
20. REPORTING LIVE FROM THE RAMP OF DEATH • The dragon is hungry, you cannot always be picky about your projects • Great people hate poor projects • You need the great people to sell your projects, but you deter them in the long run by forcing them to not do their best work Great people paradox
21. REPORTING LIVE FROM THE RAMP OF DEATH Running a product company How hard can this be? 4
23. REPORTING LIVE FROM THE RAMP OF DEATH Most of you know DHH’s three step program: 1. Great application 2. ??? 3. Profit
24. REPORTING LIVE FROM THE RAMP OF DEATH Most of you know DHH’s three step program: 1. Great application 2. Price 3. Profit
25. Must be doing something right
26. REPORTING LIVE FROM THE RAMP OF DEATH Why do so many product companies fail? But this cannot be the full story??
27. We can do this!
28. REPORTING LIVE FROM THE RAMP OF DEATH Spoiler: They didn’t work (at least for us) We tried less rigorous approaches first
29. REPORTING LIVE FROM THE RAMP OF DEATH • Try to turn client work into a product • Work with partners who handle the “business” side • Start loads of projects, but don’t actually ship them Trying to do two things at a time :-(
30. REPORTING LIVE FROM THE RAMP OF DEATH We then kind of gave up on the whole idea. $
31. REPORTING LIVE FROM THE RAMP OF DEATH And focussed on becoming a really good client services firm.
32. REPORTING LIVE FROM THE RAMP OF DEATH 20% time
34. REPORTING LIVE FROM THE RAMP OF DEATH Which bring us to the Long Slow SaaS Ramp of Death 2013 2014 2015 2016 2017 2018
35. Gail Goodman Constant Contact
36. REPORTING LIVE FROM THE RAMP OF DEATH 2013 2014 2015 2016 2017 2018 Revenue
37. REPORTING LIVE FROM THE RAMP OF DEATH 2013 2014 2015 2016 2017 2018 Costs Revenue
38. REPORTING LIVE FROM THE RAMP OF DEATH 2013 2014 2015 2016 2017 2018 Costs Revenue
39. REPORTING LIVE FROM THE RAMP OF DEATH 2013 2014 2015 2016 2017 2018 Costs Revenue The hard part
40. REPORTING LIVE FROM THE RAMP OF DEATH People are expensive Salaries are upwards of 80% of our costs
41. REPORTING LIVE FROM THE RAMP OF DEATH Let’s look at some theory.
42. REPORTING LIVE FROM THE RAMP OF DEATH Customer Acquisition Cost How much money do you spend to get a new customer?
43. REPORTING LIVE FROM THE RAMP OF DEATH code Customer Acquisition Cost 1 # Customer Acquisition Cost 2 @total_cac = 5_000.0 3 @discounts = 1_000.0 4 @new_customers = 30 5 6 @cac = 7 (@total_cac + @discounts) / @new_customers 8 9 puts "Customer Acquisition Cost: #{@cac}"
44. REPORTING LIVE FROM THE RAMP OF DEATH Average Revenue Per Unit How much do you make per customer per month on average?
45. REPORTING LIVE FROM THE RAMP OF DEATH code Average Revenue Per Unit 11 # Average Revenue Per Unit 12 @revenue = 10_000.0 13 @total_customers = 200 14 15 @arpu = 16 @revenue / @total_customers 17 18 puts "Average Revenue Per Unit: #{@arpu}"
46. REPORTING LIVE FROM THE RAMP OF DEATH Gross Margin How much do you have left over after running the service?
47. REPORTING LIVE FROM THE RAMP OF DEATH code Gross Margin 20 # Gross Margin 21 @revenue = 10_000.0 22 @direct_costs = 2_000.0 23 24 @gross_margin = 25 (@revenue - @direct_costs) / @revenue 26 27 puts "Gross Margin: #{@gross_margin}"
48. REPORTING LIVE FROM THE RAMP OF DEATH Churn How many customers cancel the service each month?
49. REPORTING LIVE FROM THE RAMP OF DEATH code Churn 29 # Churn 30 @revenue = 10_000.0 31 @canceled_customer_revenue = 800.0 32 33 @churn = 34 @canceled_customer_revenue / @revenue 35 36 puts "Churn: #{@churn}"
50. REPORTING LIVE FROM THE RAMP OF DEATH Retention How long are your customer sticking around?
51. REPORTING LIVE FROM THE RAMP OF DEATH code Retention 38 # Retention 39 @base = 1.0 40 @retention = 0 41 42 while @base > 0.01 43 @base -= @base * @churn 44 @retention += 1 45 end 46 47 puts "Retention: #{@retention}”
52. REPORTING LIVE FROM THE RAMP OF DEATH Lifetime Value How much money are you making over the entire lifetime of a customer? What it’s all about
53. REPORTING LIVE FROM THE RAMP OF DEATH code Lifetime Value 49 # Lifetime Value 50 @lifetime_value = 51 (@arpu * @retention * @gross_margin) - @cac 52 53 puts "Lifetime Value: #{@lifetime_value}"
54. REPORTING LIVE FROM THE RAMP OF DEATH • You spend $200 to acquire a customer • She sign ups for a $50 monthly plan • She churns after using the product for 28 months • Total revenue is $1400 • Your direct costs are $10 a month, that's $280 in total • You made $1400 - $200 - $280 = $920! Customer lifecycle
55. REPORTING LIVE FROM THE RAMP OF DEATH You did have to wait for 5 months to break even $200 paid for acquisition, 5 months with costs of $10 $50 a month revenue
56. REPORTING LIVE FROM THE RAMP OF DEATH This means the money is in: Keeping your customers really happy for a really long time
57. REPORTING LIVE FROM THE RAMP OF DEATH You can make a great sale at a customer that will bring in 10k over a lifetime of 60 months.
58. REPORTING LIVE FROM THE RAMP OF DEATH But impact on this month’s revenue is negligible. 2013 2014 2015 2016 2017 2018
59. REPORTING LIVE FROM THE RAMP OF DEATH So even if you do everything exactly right straight away, you still struggle!
60. REPORTING LIVE FROM THE RAMP OF DEATH Patience is key.
61. REPORTING LIVE FROM THE RAMP OF DEATH Your mission Find some way to survive while you climb the ramp.
62. REPORTING LIVE FROM THE RAMP OF DEATH Sub Our first two months looked like this (These are actually both still customers!)
63. REPORTING LIVE FROM THE RAMP OF DEATH Surviving the ramp.
64. REPORTING LIVE FROM THE RAMP OF DEATH Freelancing Probably not what you were hoping for :-)
65. REPORTING LIVE FROM THE RAMP OF DEATH Be cheap Spend no money if you can avoid it.
66. REPORTING LIVE FROM THE RAMP OF DEATH Customers that pay up front Instead of taking months to earn back the acquisition cost you have cash in the bank you can use right now.
67. REPORTING LIVE FROM THE RAMP OF DEATH Punch above your weight Go out on a limb, a bit of bluff is better than never closing any customers.
68. REPORTING LIVE FROM THE RAMP OF DEATH Advisors / Investors We used a loan by our advisors to hire more developers so we could move the product forward faster.
69. REPORTING LIVE FROM THE RAMP OF DEATH Do things that don't scale Make sure you don't write code for everything you do.
70. REPORTING LIVE FROM THE RAMP OF DEATH Talk to your customers Another classic piece of advice, but I'm repeating it anyway.
71. REPORTING LIVE FROM THE RAMP OF DEATH Build something for people you like We built a product for developers, our own people.
72. REPORTING LIVE FROM THE RAMP OF DEATH Write! We've been writing both about what we're doing and interesting things we learned along the way on our blog.
73. REPORTING LIVE FROM THE RAMP OF DEATH Vision & the Brain.
74. Let's go back in time about 4 million years ago.
78. REPORTING LIVE FROM THE RAMP OF DEATH Three brain layers Reptilian: Limbic:
 Cortex: bodily functions, reflexes, responding to danger emotions, automatic behaviour, assessing our status within our social circle Intelligence, vision.
79. REPORTING LIVE FROM THE RAMP OF DEATH Humans can envision a different future and actually create it
80. REPORTING LIVE FROM THE RAMP OF DEATH But: This only works if energy is directed to the cortex
81. REPORTING LIVE FROM THE RAMP OF DEATH You can only really execute on a vision if your entire team feels physically and socially safe
82. REPORTING LIVE FROM THE RAMP OF DEATH Physical safety You're not making enough money to pay salaries. How can you pay the rent?
83. REPORTING LIVE FROM THE RAMP OF DEATH Try not to feel bad about feeling bad. This stress is normal for people in this situation. It will get better.
84. REPORTING LIVE FROM THE RAMP OF DEATH Social safety Make sure you have a lot of mutual respect between all team members. If something is off in the dynamics immediately address it.
85. REPORTING LIVE FROM THE RAMP OF DEATH Appreciate that members of the team have different ways of approaching a problem or opportunity.
88. REPORTING LIVE FROM THE RAMP OF DEATH Realise that spending time on making sure the team structure works is very important.
89. REPORTING LIVE FROM THE RAMP OF DEATH Vision Once these two levels of safety are taken care of you can execute on the vision.
90. REPORTING LIVE FROM THE RAMP OF DEATH We spent a lot of time really thinking about what our values are and what kind of company we want to be.
91. REPORTING LIVE FROM THE RAMP OF DEATH If you want to succeed you’re in it for the long haul, better make sure you’re doing it with an amazing team.
92. REPORTING LIVE FROM THE RAMP OF DEATH • Building up a SaaS business takes a lot patience. The long slow ramp of death is brutal. • Once you’re past your base cost level it’s awesome • It helps a lot to make a product for people you understand and like • It helps a lot if you are vision driven and take the time to build understanding for each other in the team Conclusion
93. "The best time to plant a tree was 20 years ago. The second best 
 time is now."