When you break ground on a new SaaS startup it’s easy to set ambitious sales goals.
Pick a number…1,000+ customers, $1mm in annual revenue, a dozen strategic partners lined up by year two. Oh and don’t forget the hockey stick growth.
Forget it. Forget all of that. Those numbers, those goals, they aren’t what you should be focusing on right now.
Yes, goals are extremely important. But just as important is focusing on the right goals.
You Only Have 1 Sales Goal Right Now
The problem with extensive modeling of sales and customer growth, anything outside of a few months into the future, is that there are simply so many unknowns. You have dozens of hypotheses that haven’t been validated so even the best model will rely on assumptions that will crack and throw you completely off.
After all, the point of a SaaS startup is to take your idea, your hypothesis, and test it to see if it is in fact true. If it’s true you have a new business. If it’s false, you’ll need to pivot or move on. Your entire business at this point has ZERO knowns, so any extensive sales modeling is at best something to placate your investors.
And don’t get me wrong, sales planning and modeling is extremely important…just not right now. Once you find your repeatable sales process then sales models are fantastic. They’ll tell you when to hire new reps, how much to invest into product development and where to focus your efforts.
Right now though, you need to validate the primary hypothesis of your startup. The first and clearest sign that you’re doing that, that you’re finding product/market fit, is that you’ve closed 10 unaffiliated paying customers.
Now let’s break this down…
10 customers is not as arbitrary a number as it seems.
We’ve already discussed how too large of a number isn’t realistic. There are simply too many unknowns between 0 and 1,000 customers, or even 100.
On the other end of the spectrum, 1, 2 or 3 customers is too coincidental. While not statistically significant, after you’ve signed up 10 customers you start to see patterns. Just as importantly, by 10 customers you’ve gained some key traction on a particular sales channel. Your next customers, 11-20, will then be much easier to get than your first 10. And soon after this’ll turn into much needed momentum.
Last, this number works well at almost any sales amount. Whether you’re selling at $5/mo or $100,000/yr, 10 customers is an applicable first milestone to distinguish your idea between just that, an idea, and a valid business.
Not only do you need 10 customers, they can’t be clients, friends, family or anyone you knew before building your product. Those customers aren’t bad, they just don’t tell you anything useful either. Chances are they’re customers of YOU, not your product, meaning they aren’t indicators of whether your product solves a real problem.
Remember, you need to validate that you can build a scalable business. And you cannot create a business purely from your clients, investors and friends. Those sources will run dry, likely sooner rather than later.
Once you’ve signed up 10 customers, completely unknown, out of the ether, honest to goodness, unaffiliated customers, you’ve learned that there is a potential market for your product. Of course now it’s your mission to do that same thing 1,000 times over, but the point is that you don’t have 1,000 old coworkers to keep selling to.
Remember, friends & family don’t count as customers because they don’t help you validate whether you have product/market fit.
Similarly, anyone who isn’t paying isn’t a customer because they also don’t validate product/market fit for you. Collecting a check from a customer is the single best way to prove that they need your product.
I’ve heard potential users say they absolutely need my idea, that they’d pay good money for it, that they’d use it every day, that they are so happy someone finally came along with this solution. And then when I ask them for their credit card they disappear.
To be clear it’s not about the revenue at this point; it’s about what the money is telling you. The phrase “Money Talks” couldn’t be more accurate here. When someone is willing to pay for your product they’re saying, “I need this!” And you’ll also find that someone who pays is also vested enough to to use it regularly, helping you improve the product itself for future customers.
Finally, what does it mean to have a “customer”?
If they’ve met all the other criteria – that you don’t know them, that they found your product and wanted it so much they decided to pay you money – something funny happens. If they are true customers, they become one of the biggest assets you have. Your first 10 customers:
- …are typically your biggest advocates & promoters
- …know you’re small (no matter how much you try to hide it) but love you for it
- …want to see you succeed
- …will be your best bug finders
- …are willing to get on the phone and give you feedback
- …give you a break when things don’t go right
- …and are just as happy to be one of your first 10 customers as you are happy to have them as a customer.
So stop planning idealistic yet unrealistic goals. Instead, focus everything on finding 10 unaffiliated paying customers. Once you’ve done that, then you have a startup!