How Upekkha's 108-Startup Cohort Beats the 15% SaaS Survival Rate (Interview with Accelerator Co-Founder Rajan Maruthavanan)

Opening: SaaS Survival Statistics

Rajan Maruthavanan

00:00So what if I told you that 85% of the SaaS startups that start out do not cross a million dollar in ARR? This is statistics from Nathan's

00:14database that he puts together where he tracks the entire SaaS universe. There are about 32,499 startups as of yesterday. And out of them, about 4,766 startups are beyond a million dollar in ARR. That's roughly about 15 out of 100. Now out of those 400 4,766 startups, 2,700 odd startups are above 2 10,000,000 in ARR. 2,687 startups are above 10,000,000 ARR, which means one out of two that have crossed a million also crosses 10. Now anybody in

00:56the SaaS industry knows that if you cross about 10,000,000 ARR, then you are almost immortal. It's very, very hard to kill that particular startup, unless, of course, you do something very stupid. Maybe you got caught in a rave party or you invested in Silicon Valley Bank just before March 10. I know two founder friends who did that. So other than that, you are pretty much immortal. Now some of you who are very data centric, you're like,

01:23no, you're just taking a snapshot of the stats here. You should look at the time series. Fair enough. I looked at this data at Crunchbase. Crunchbase says that as of yesterday, 24,700 startups are there in the world. Now Nathan tracks bootstrap startups as well. That's why you see the numbers are different. But out of that, 3,000 startups are the ones that have crossed about a million dollar in a era. Five years ago, I looked at the

Time Series View and India SaaS Data

Rajan Maruthavanan

01:51statistics because I was writing a blog post for comparing the number of startups between India, Israel, US, UK, and Australia. And at that time, there were 17,700 SaaS startups, out of which, again, about 2,700 odd startups were above a million dollar in ARR. And I work very closely with Indian SaaS startups. And in 2018, the number was there were seven eighty three SaaS startups, out of which 72 had crossed a million. So you can slice and

02:17dice them differently. You take snapshots in different years. And you could even go back to 2011 when Jason Lemkin was tracking. The number ranges between ten percent to fifteen percent. Zero to one stage of the startup is where the highest amount of mortality rate is. And me and my co founder, Prasanna, we've been thinking about this for a while. Why is it that in the zero to one stage, the highest amount of mortality rate is there?

Zero-to-One Mortality and Upekkha's Origin

Rajan Maruthavanan

02:41He was working at Microsoft, me at Intuit, and we ran accelerators inside in our organization and outside. And we were trying to improve the odds of the zero to one mortality rate.

02:54We looked at lot of frameworks. We looked at Lean Sheen startup or whatever was the fashion of the day, like whatever is the fashion of today. We were looking at frameworks and we said, can we use it? And we would get very elated. We would say, this is something that looks like that you can solve the problem. And then a few months later, you would realize that it was only being used by people who are selling

03:13frameworks. It doesn't really, really help. And out of all the frameworks that we have looked at, the one that I'm the most disappointed with is this whole idea of product market fit. It's not even a framework. It's just a phrase. Some people like to call it a mental model. And I think, you know, it is a fraud mental model. I have not found a single entrepreneur who could look at the definition of product market fit and

Upekkha Overview: 108 Startups, 11 Cohorts

Rajan Maruthavanan

03:40say, hey, this is how I reach product market fit. It has not been actionable at all. This mental model is only used by investors that's what I've seen in the last ten years to decide whether they should further do follow on funding or not. It doesn't help in making progress in an actionable way for founders. So I run a SaaS accelerator called upekha, and I work with about 108 startups as of our last cohort, which is

04:06the eleventh cohort. And in our first cohort in 2017, we had 10 startups that joined us. Eight out of the 10 have crossed about $1,000,000 in ARR. Ninth took a small exit. And then the tenth one is the one that did not cross the $1,000,000 ARR mark. They are roughly at about 40 ks of MRR. Now through these trials and iterations, there is some method to this madness of going from zero to one where the odds

The SaaS Flywheel Framework

Rajan Maruthavanan

04:32are more than 15% that we've seen. And in that experience, what we've come to frame this as is we call it as building a SaaS flywheel. Now, when you're building a SaaS product, you are, of course, going to do engineering. You're going to do building. You're going to create your product. You're going to do some marketing. You're going to do some sales. And you're going to set up your customer success. All of this is going to

04:56happen. But underneath that, you're going to actually do fundamental choices, fundamental blocks. And that we call as the inner flywheel. And this inner flywheel is nothing but a set of six choices that you make. And the reason we call this as a flywheel is all these choices are interrelated with each other. You change one of the choices. You have to come back and look at all the choices and reevaluate them and maybe change them if you

05:23change one of these choices.

05:26Now, when Nathan reached out to Prasanna, he said, hey, look, now you need to give a talk. And then we were like, yeah, sure. But then I told Prasanna, look, we spent six months working with founders on working on these six choices. How is it that I'm going be able to do this in twenty minutes? And he said, no, go figure. And then Nathan connected us to Mandy. And Mandy was like, look, if you don't finish

05:49this in twenty minutes, we are going to yank the speaker out of the stage. Well, fair enough. But then I love when a conference is so tightly well produced. So good job, Mandy and Nathan, on making sure that the conference is running really, really tightly. But then what I'm going to do is I'm not going to cover 108 slides. I'm only going to talk about four of these six choices and very limited aspects of those four

06:15of these choices. All right. So let me start with the first one. And this is my favorite one. How many of you in the audience are developer? Raise hands.

06:27Okay. I expected a little bit more. I mean, 15% to 20%.

Choice 1: Solving a High-Value Problem

Rajan Maruthavanan

06:33I hated to break it to you guys that I was a developer myself. Most of us think that pushing code is as equal to product. I'm sorry. Pushing code is not equal to product. A product is a problem that you're solving for a group of people. Often, group is called a fancy name is given to it, called as the ideal customer persona. Just you group them a certain way. And then you refer to that using a

07:01shorthand name. Often, shorthand name is called as a category. But of course, if you're designing a chair or you're building a product like a chair, you're not going to say, hey, what problem does a chair solve? You're going to be like, yeah, this is chair. I want ergonomic chair, or I want a chair with a wheel. But imagine the day when chair was getting designed for the first time ever. At that particular point in time, we

07:26did not have the common mental model of the word called chair. We were perhaps having this conversation about, Okay, we're trying to make sure that we are able to elevate someone a certain feet above the ground. And when you're building your software, when you're building your SaaS company today, you're perhaps at the same point in time when chair was getting built for the first time. So therefore, it pays for you to think about this in terms

07:49of the problem that you're solving and in terms of the group of people that you're focusing on. And you want to make sure that you are solving a high value problem. And you want to make sure that you are deliberately thinking about the group of people to whom you want to target this. And you want to make sure that if you are building SaaS, you are at least thinking about solving a problem which is at least

08:12worth $3,000. The cost of problem is at least $3,000 or more. Let me illustrate this with an example. IMOCA was part of the first cohort at upekha, And they were a skill assessment platform company. If doing hiring, then IMOCA is relevant to you. What they do is they make the entire prescreening of the hiring process automated. They send out tests to candidates. They get evaluated, and the dashboard of that is presented to the hiring manager. They

IMOCA Case Study: ICP Repositioning

Rajan Maruthavanan

08:45being founders, they were targeting other founders, and they were selling $1,000 ACV in a year. And they had flat revenue for quite some time. They were good at sales. They would complete the sale. But then three months later, the startup founder that had signed up will churn out. They changed their approach a little bit. Instead of focusing on founders, they went to large companies, have at least about 10,000 people in their organization, at least 200 people

09:12in their HR organization. And then they said they took the same piece of code and then gave it to them. Now these folks who are in in large organization, they spend their entire day in sending all these service. So sending all these skill assessment tests. Now, for a founder, what happens is he may do hiring once, twice, maybe thrice a week. He's not going to do this use case on a daily basis. But when it is

09:39adjusted to another HR manager or a HR person, they have to live in a tool like this. So when they found a tool like this, the few minutes that they were able to save for each of the time they sent and when they got it added up in their entire day, that was transformational for them. The code did not change. It's just the persona changed. And where they were struggling to sell for $1,000 a year, here

10:02it became very, very easy for them to sell it at $6,000 a year. And that brings me to my next point, which is choose your geography very carefully. Here, I have to tell you my experience of working with Intuit. I was the head of product for QuickBooks outside of The US market, which is India, Malaysia, and Singapore. And we spent a lot of time in these markets. And one thing we realized, it is very, very hard

Choice 2: Geography Selection

Rajan Maruthavanan

10:28to sell software. And was I talking to Greg about this during lunch. Very, very hard to sell software in a market like India. And initially, I thought, you know, it is maybe because software is an experienced product. It is an intangible product. You don't get to touch and feel it. And I thought, like, you know, in a low trust environment, low trust society, if people can't touch and feel it, then maybe it's very hard to sell

10:52a product like this. But then then, like, you know, something else happened. And I saw that, you know, people were able to sell religion, were able to sell devotion, devotional songs. All these are intangible. They were selling. So intangible was not the reason software was not selling. Then it took me a couple of years to figure out that it is rooted in culture. Countries like India, Malaysia, and Singapore, they find time to be really, really abundant.

11:22Developed markets, they find time to be really, really scarce. So if you are selling a product like QuickBooks, or pretty much every SaaS company, which is just a variation of save time, if you are selling save time to a country where they already have this in abundance, they are not going to buy it. So there are some geographies which are time rich but money poor. And if you sell save time there, it's not going to work.

11:49But some geographies which are money rich and time poor, then save time value proposition and messaging is going to work. So the Indian founders had a variation of this. And this is something that we help and work out and make it practical for a lot of the Indian founders is that they have come to a maxim now saying that, you know, if you're selling from India, it is easy to earn a dollar than to earn a

12:14rupee. Now if you are from a country which is outside of US, ask yourself this question that in the cultural context of that place, what do they relate with in terms of time? Is it in abundance, or is it scarce? Then you go and pitch a save time messaging there. Oh, yeah. I can actually illustrate this with the example of again. IMOCA, if you see the place where it is highlighted, first, they were able to get

12:42out of their flatness after they changed their ICP and the problem value. And then they decided to shift from India to The US. Now, it takes some courage to do something like this because the traditional advice that people will get is is like solve problems for people around you. So they had to go against the grain, and they had seen a dip in their revenue, and they had to actually weather that and then move forward. But

13:03then that set the foundation for the next level of the s growth.

13:09Let me talk about the fourth choice. The fourth choice is about positioning. You want to be very, very deliberate about positioning. This is something, again, developers struggle with. This is one of those things which once you see it, then you cannot see it. Because when you change the way you look at the things, then the things that you look at, they change. Positioning is criminally underrated. Position what happens is we as humans, we make sense of

Choice 4: Deliberate Positioning

Rajan Maruthavanan

13:39the world by having boxes and containers in our head. When you are looking at me, you're asking this question, are you a developer? Are you a product manager? Are you an investor? Are you a founder? And you're going to ask this question saying, is this a CRM when it comes to products, or is it a customer experience management? CXN. So oftentimes, see that founders come back and say, hey, sales is not working. Sales is not closing.

14:04Sales is often a symptom. It's not the root cause. The root cause could be that you've not done the positioning right. You've not allowed the customer to have the conversation raised in the right box in their head. So whenever having a positioning conversation, I say, think about x axis and y axis. Plot a graph like this. Like when thinking about positioning, remember this phrase, association and differentiation. First association, then differentiation. Association is what is that x

14:36axis? What is that category name? If you don't have a category name, find a good analogy. What is that analogy that people already understand around which you can hang the explanation about your product? And then what is it that you will do to differentiate? Not only do you want to make sure that you are in the right container in customer's head, but you want to make sure that your product is the one that gets placed in

14:58the container. So you have to think about differentiation. So associate and differentiate. Now you could say, existing blogs, or you could say, existing blog with a certain height. Don't do that. Say chair on the x axis or say CRM. And then on the differentiation, you could say, hey, this is a CRM that is integrated with social, and it is 10 times better than any other CRM. So for those customers who are looking for that, you are

15:24the winner. You want to place your x axis axis and y axis in such a way that your product comes out on the right hand top as the winner there. Well, let me illustrate this again with another example, right? So Neurotags is a company of ours, and they were initially focusing on making sure a QR code gets placed on all branded item, let's say an LG product that is getting sold on Amazon. But what happens is

Neurotags Case Study: Positioning and Rebranding

Rajan Maruthavanan

15:44that LG doesn't have the end user's data. So they help you put a QR code, which the end user, when he receives it, he registers through it, and then he gets warranty support. Now using that, they get the data back. For a while, for an entire year, what they did was they just focused on the code aspect of it. Now they did this positioning exercise. Then they realized the x axis that they should be talking about

16:06is post sales experience. And they realize that their differentiation is one click, one click post sales experience. This led them to even change the name from neurotags to direct, allowing brands like LG to have direct connection with their end users. And earlier, they were struggling with $2,000 ACV conversation, and this repositioning helped them close deals at $30,000 ACV.

Choice 5: Raising Prices

Rajan Maruthavanan

16:32Bonus fifth choice on pricing. I'm going to go really quick on this. This is even though I said four, but the fifth one is that founders are afraid of raising prices. Right? And this is a big one. Let me quickly talk about another startup called Social Pilot. I worked with two companies like Social Pilot, one which got to 300 ks, 500 customers, but had to sell off because the founder was afraid of increasing the price, spent

Social Pilot Case Study: Doubling Growth by Raising Prices

Rajan Maruthavanan

16:58four years building their business. But Social Pilot crossed 6,000,000 ARR last year. And the key thing that I would attribute is that they were not afraid to raise pricing. It was not easy. It was difficult with them. Prasanna, my co founder, threatened to throw them out of the cohort. If they don't increase the pricing, they went ahead and did that. And then they saw that the revenue did not dip. There was a little bit of a

17:17churn. And then they become encouraged by that. So then they continue to increase the pricing, and that led them to double the growth every year. So to summarize, use a SaaS flywheel as the mental model for you to actually charge your path out of the zero to one. And within that, the three most important and the powerful levers are solve a high value problem, make sure that you are positioning in an existing category, and be very

17:44deliberate about the pricing. Sorry, deliberate about the positioning and make sure that you increase pricing. Thank you, guys.