SaaStr Annual: Fail Fast to Scale Fast

After building my career in the startup space, it was a great pleasure to speak at SaaStr Annual 2022 about managing marketing revenue expectations in the rapidly evolving SaaS startup world. While every startup environment is a bit different, marketing leaders tend to get three consistent questions from leadership. 

1. How much budget do you need?

2. How much revenue will you generate?

3. How fast will you generate the revenue?

These questions aren’t always simple or straightforward to answer when you’re lacking historical data and market context. My experience in startups from seed to pre-IPO taught me the only way to answer these questions is to understand that it takes time to scale marketing investment. And sometimes, you have to embrace failure to scale faster in the startup world.

Let me explain.

1. Budgeting: What you need before you ramp spend

First, take a gut check of what’s needed before you really ramp up marketing spend. Perhaps you find yourself in a classic startup situation where revenue growth is scaling quickly, marketing needs to contribute to that pipeline acceleration at a high rate, and you have the ‘green light’ with the budget to hire a team. Even when all signals say “yes”, it is important to remember that you are bringing together a plethora of variables– new people, processes, and channels–so you need to be cautious about how you’ll predict the revenue you’re able to generate.

Before you scale the spend, you need to have four things in place:

1. A performant sales team that hits quota regularly. Do we know if we put more in the top of the funnel, more will come out the bottom from the Sales side?
2. Baseline funnel metrics on the marketing side. What you measure is up to both marketing and sales, and you need to be aligned on what you are measuring. When these baseline goals align, you can accurately know your budget needs. Be transparent to secure a budget and determine what revenue you need to make the company successful. 
3. Consistent, repeatable customer success. Can you identify leading indicators of adoption and renewals? It is not time to scale if you don’t have reliable customer success. NDR (net dollar retention) should be 100% or above for SaaS companies. But if you’re an annual subscription service, you can’t wait a year to find out if customers will renew. The trick is to look at leading indicators of customer success. At Laika, we look for customer behaviors like the work they put in and their commitment during the onboarding period to indicate real success and adoption. We know customers are highly likely to renew if they hit their first milestone of a successful SOC 2 audit but that outcome won’t happen on time if they aren’t doing the work. 
4. An understanding of your budget runway. What is the marketing burn rate? How much are you spending and how long do you have to spend at that rate? Additionally, transparency about the company-wide budget and burn rate allows you to better understand when to adjust course if revenue growth is not where you want it to be. 

With these four things in place, you can start building your revenue plan and answer the billion-dollar question: How much revenue will marketing generate?

2. Setting and managing revenue expectations

Once you have your budget in place, it comes time to build your revenue plan. Some important aspects here to understand include:

• Has a goal already been set, or are you being asked to set that goal up?
• What expectations exist within your plan? For example, is your sales pipeline building their AE (account executives) and sales hiring plan based on marketing generated leads?
• Are there other triggers you need to be aware of with your plan to communicate when to adjust course?

Once you can answer these questions, you can better understand how to set and manage expectations among stakeholders and start to build your plan. 

So, now you need to model your plan, and I suggest a bottoms-up growth plan:

• Build out channel-by-channel projections for your spend. Consider your expectations of how much you need to spend to drive leads, MQLs, and revenue by channel. Document your assumptions by channel month-over-month and quarter-over-quarter (yes, a spreadsheet works fine to start). 
• Some marketing channels have more direct ROI, and others are more ‘opaque’ (harder to attribute directly.) So, be realistic about what you’re willing to dedicate to brand spend versus demand generation spend. It’s also critical to levelset with your executive team and align on these expectations.
• Build a high, mid, and low-range output scenario for your marketing budget. This is especially important when working with multiple variables and moving pieces (not to mention these uncertain economic times.) This allows you to adjust course and stay agile should circumstances change.
  

Accomplishing this type of plan takes a lot of patience and… spreadsheets! Reporting and documentation must include both projected and actual amounts. Therefore, collaboration and transparency with finance are key— don’t be afraid to get them involved in the budgeting conversation early on and revisit with them quarterly at a minimum or more frequently for faster sales cycles. Think of this as charting the course to achieving your goal. And if you notice early indicators where your projected success metrics are falling short, you can quickly pivot since you have multiple checkpoints and plans in place. You’re failing fast to scale fast.

I’ll give you an example of failing fast in action. We ran a test on Facebook against Google and LinkedIn ads for four months and realized Facebook was costing us 3X for a lead versus Google and 15X versus LinkedIn! This realization didn’t mean we just threw out all the good parts with the bad ones. We adjusted our approach and tried different optimization approaches from offer to audience segments. Despite reducing our CPL (cost per lead) by 50%, we still couldn’t generate any MQLs (marketing qualified leads) from Facebook ads. After realizing this failure early on, we could dedicate those dollars to other, more performant channels.

3. Generating that revenue

Optimize and fine-tune spending by testing for set periods, whether it’s where to invest ad dollars, which events to sponsor, or another marketing tactic. Regularly monitor each channel to see which are generating qualified leads and revenue and compare it with the cost of acquiring each lead—if you need to adjust course, do so. Also, be aware that your cost per MQL can also change, so frequent check-ins are crucial. Having those cost profiles in place will help you better tactically adjust to get back on track. 

Transparency is essential, so monitor your revenue and share how it’s going. You did the hard work up-front with the spreadsheets and establishing goals. Talk with sales, finance, and founders, and tell them how results are tracking against your assumptions. If there are discrepancies, explain how you will adjust course—again, you’re looking to scale fast by failing fast. 

Key Takeaways

1.  Spend responsibly. 
Create a realistic budget and spend where you need to in order to achieve the results you want.

2. Develop a bottoms-up, channel-by-channel performance plan.
Setting your revenue plan from the bottoms-up enables you to build a plan that can pivot when need be.

3. Create a plan for revenue growth.
Your revenue plan should focus on a high, mid, and low-range output scenario for your marketing budget.

4. Monitor how it’s going often.
Check in with your plan and chart your course when you need to.

5. Share how it’s going often.
Collaboration and transparency are key— don’t be afraid to get them involved with teams in the budgeting conversation early on and revisit with them quarterly at a minimum or more frequently to adjust any part of your plan that needs adjusting.

6. Have fun!
And finally, have fun in this adventure that is generating revenue. It is an experience and you will learn so much along the way.