And why it will not matter if we don’t reach there!!

A practical example by a startup using YC SUS

We are not a new startup as we launched 4 years ago in the Middle East as a services marketplace. Back in July 2020, I relocated to the United States to launch the business here. However, In the US, we pivoted to a different business model which is an SAAS-based subscription (You can check the footnotes to learn what LeadCenter.ai is about and what we are trying to do. But it doesn’t matter. The methodology applies to any startup).

As we are new to the US market, we were trying to get help from multiple places. I enrolled in YC Startup school around the end of June but was too busy to do anything with it as I was occupied with the relocation and settling down. I visited the website again around August 25th, 2020; I gave the material a quality 2-3 hours review and I was stunned and marveled. This is exactly the help we are looking for and we are getting it for free! We had our fair share of mistakes in the first 4 years, and that made the curriculum and content very relevant. So, we can relate easily to the lessons and our experience. While watching the videos or attending office hours sessions, we realized the value of the information.

However, doing the weekly updates can be a bit tricky at the beginning. Also, making an execution plan can be trickier. So, I am sharing how are we doing it: the execution plan for the first six months and the things we scrapped out based on what we learned in SUS.

So here we go:

We established a Primary KPI to reach in 7 years!

Objective: Reach to $100 Million ARR in 7 years

Our primary metric in SUS weekly update is Annual Recurring Revenue (ARR). We selected ARR vs. MRR because in the first 6 months we are focusing on customers that will pay the subscription charge upfront annually. So, when we look at ARR at any point in time, this is the actual cash we collected in our stripe or bank accounts.

We built the first 6 months weekly-growth-rate forecast for the primary KPI

Grow ARR at an average of 24% WEEKLY! for the first 6 months

It took just a couple of hours to build a 6-month weekly forecast vs. wasting days or weeks in building a complex full financial forecast (we said we will deal with that later).

You will notice that there are four critical KPI’s missing: Churn rate, LTV, CAC, and Days to Close. I have added a footnote at the end of this article for those. Our North Star is to grow ARR to $76,000 in 6 months by maintaining an average of 24% weekly growth. We did other changes based on what we learned from SUS. For example:

• Focus on what matters short term and doing things that don’t scale: In the first 6 months, we have to onboard around 85 paying customers. As there are 5 of us, we figured out we have ample time to assist those customers with onboarding. So, we stopped building a self-service system and we assumed each one of those will be onboarded manually. We split the 5 of us into 4 functions: Marketing, Sales, Onboarding, and Development.
• Word of Mouth: While our pricing is in the danger zone, 95% of our company is located overseas. That is giving us a cost advantage. Also, in the first three months, we are building word of mouth references in the same categories. The first 100 paying customers are critical to us. So, we will do things that don’t scale for them. We already got one win from word of mouth in the first 30 days.
• No Free version: We scrapped the free version of the platform. We figured out that the free version will not be critical to achieving our north star in the first six months. We may come up with a free version later, but we don’t have time to waste on free users. Free users can give bad signals and may lead us in the wrong direction. However, we are keeping the platform open with no restrictions so we can monitor the behavior of new users.
• Sell before you build: We started selling features before they become available. When we talk to customers, we present the features that we think are most attractive to them. We tell them that this feature will be available in X weeks or months, so we are giving them a major discount as an early adaptor, etc.

We applied Agile to sales and marketing with weekly sprints

we split the weekly activities load to 60%-40%:

• 60% focused on achieving this week target
• 40% for achieving the following week's target

However, we agreed that this week's target is the top priority and we will do
anything to achieve it. If there is time left, we will work on next week.

We established Pipeline Stages

For an SAAS, this is the most critical component to establish early on to measure the conversion at various points. You will need to settle on a CRM to manage your pipeline (you can start with a simple excel sheet). For us, the CRM is integrated into our platform. So, we used our tool.

Again, we are doing things that don’t scale to manage this pipeline; but with time, we will be applying more automation to optimize the conversion process.

SUS Weekly Update

For the last 4 weeks, the entire team got together every Monday morning to do the following

1. Update the Primary and Secondary KPI.
2. We discuss lessons learned, what most improved the primary metric, and the biggest obstacles we are facing.
3. Set the Three Top Goals for the next 7 days.

Below is the latest update. We review the pipeline together, then we launch a new weekly sprint and create the tasks for the week to achieve the primary KPI and weekly objectives.

How well we did in the first 6 weeks?

• Week 0: we met the target.
• Week 1: we missed (we signed three deals in that week, but we count the deal only when the full year subscription payment hit our Stripe or bank accounts).
• Week 2: we closed one more deal, but we missed ARR again.
• Week 3: things started turning positive and we came very close to our forecast.
• Week 4: It was a big week for us, we closed at 400% the weekly target, and ARR is at 172% the forecast.

Why it will not matter if we don’t reach there?

The last four years taught us that 500 things may go wrong: The assumptions we are making now may be wrong at the next scaling point, there may be changes in the market or innovations that may make our platform irrelevant, we may fail to raise funding, etc. However, two things matter the most for survivability:

• Perseverance
• Fiscal Responsibility

Perseverance is that you are in it for the long run. Regardless of the pain and failures, you will endure in the first few years. If you are persistent, you will figure it out eventually. Whether it will take 1 month or 1 year.

Fiscally responsible: if you are in business, startup, lifestyle, or a large corporation, it comes down to one simple formula: Z = X - Y. A company is a Profit = Revenue – Cost.

I am not sure if the first can be taught, but you can definitely learn the second. It took us 4 years to figure out how to operate a profitable service marketplace company. Our branch in the Middle East is generating now Multi-Million Dollars in GMV annually. Our revenue reached hundred of thousands of dollars per year, and we are growing at an average of 15% monthly for the last 7 months, so we are on a path to reach the $1 Million Revenue Magic Mark very soon. Frankly, I have no clue how we got there while making every mistake we should've avoided. The only explanation is Perseverance.

Recently, I came across this quote by Noah Kagan. I love it. Not the point about getting rich. Actually, a lot of entrepreneurs don't give a shit about money, rather pursuing their passion and building things. The ones that are doing it for the money can't handle the pain; they quit and get back to jobs with salaries. The point is it takes many many years of hard work with little rewards to build something meaningful.

We are carrying on for the next 7 years. We may fail to reach a $100 Million in Revenue. We may reach it at later date. However, if we are persistent and fiscally responsible, the worst-case scenario could be a lifestyle SAAS business with $8Million to $10Million in revenue, paying the 4 founders as well, and leaving us with marginally good profit.

Good luck to all of you. One last thing: Thank you YC Startup School team. Amazing work! and highly recommended to all new founders.

For more about our journey you can read:
July 2020: The 15 things we did to avoid closing down our startup because of COVID19!
June 2018: The top ten 10 mistakes we did launching an Internet Startup and how we survived so far.
July 2017: My first year anniversary after leaving a secure job at Microsoft to start my own business. What is it like?.
Dec 2016: The 6 things you have to forget when you leave your job to open your own business.

footnotes :

• If you are new founders and you are committed to this, SUS curriculum will be more relevant with time. So even if you watched it once, keep coming back to it in the next few months to relate it to your own experience.
• Group Sessions are amazing: other startup founders can give a much better perspective on our business than we can think of. It is an out-of-the-box view. Also, it is a great place to head-hunt ;).
• Churn rate: As we are collecting payments upfront for 1 year with none-refundable terms, we froze Churn Rate as a metric for up to 1 year. However, we enabled usage tracking and screen recording from now so we can get back to this data in 6 months. Unchecked, it is a time-bomb.
• CAC and LTV: We assumed a worst-case scenario of 1 Year LTV. Again, as we are collecting payments upfront, so we could comfortably spend on CAC up to 10% of the revenue and realize the LTV in the same month or the following month.
• Average Days to Close: From the first 10 paying customers, it seems it is around 15 days, which is great. However, we are keeping a close eye on that as it is a key metric.
• LeadCenter.ai is like Shopify for Service Businesses. It is an eCommerce Website Builder with CRM capabilities focused on small service businesses.