So there’s a theme I’ve been engaged on with all of the SMB-focused founders I work with and have invested in:
#1. The Objective for SMB SaaS is 100%+ NRR. Simple in enterprise, onerous in true SMB.
#2. Nevertheless, SMBs have a sure stage of inherent churn. That’s usually 3% a month or so. You may nonetheless make them tremendous glad, however a subset of small companies will churn at that fee anyway.
#3. Your job is both to go far more enterprise to get to 100% NRR — or to make your product into the OS for an SMB. Into an ERP. Into the #1 most essential app they use, and might by no means rip out. After which — your NRR will cross 100% with SMBs. And that may imply constructing much more product.
Brian Halligan, Chairman and co-founder of HubSpot did a deep dive just lately on LinkedIn and the way HubSpot acquired from 60% to 100% NRR here. Brian talks about a whole lot of issues that moved the needle in getting HubSpot to 100% NRR.
However the one that actually shined for me was that their preliminary 1.0 product, which was simply prime of the funnel — had inherent churn. It was an excellent product, of us beloved it, however with out constructing center of the funnel performance like Marketo / Pardot / later Klaviyo had, they’d by no means get to 100% NRR. Finally, they purchased a start-up known as Perfomable (the Drift co-founders earlier start-up) to get there.
And that is the same journey I see with many SMB SaaS start-ups. Progress will get robust, prospects are glad — however churn nonetheless stays stubbornly excessive. It comes down a bit, however not sufficient. They enhance onboarding, and integrations, and coaching, and gross sales comp plans, and extra, and that every one helps and is essential. All that does in actual fact drive up retention, to an extent.
However even there, with SMBs, it’s usually not sufficient. You usually merely want extra product to get to 100% NRR. HubSpot wanted so as to add advertising and marketing automation after which CRM to get there.
We just lately did a deep dive with the CEO of MangoMint, SaaS for spas and salons that SaaStr Fund is an investor in. On the time, they had been at $12m ARR, rising 100% — with 110% NRR.
Daniel did an excellent deep dive on how they did it right here. However in a nutshell, it’s a collection of nice merchandise built-in collectively to create an OS / ERP for his or her buyer. Not simply super-slick bookings and scheduling for salons and spas, but in addition funds and payroll, and entrance workplace and again workplace automation. All of it’s essential to hit 110% NRR from SMBs:
The story is comparable at Toast. They constructed all of this and extra to get to 100%+ NRR.
To get to 100%+ NRR with SMBs, you usually need to do each. Relentlessly assault the causes of churn. But in addition on the identical time, constructing increasingly of the core performance the SMB wants. Sufficient in order that they’ll actually by no means depart.
