Fewer numbers

Startups in general and SaaS in particular have the ability (and tendency) to look at a lot of metrics. But looking at too many metrics make it difficult to communicate how things are going. Even if there are 40 things to improve, there shouldn’t be that many key metrics.

Don Valentine, the founder of Sequoia Capital, said: “There are two things in business that matter […] high gross margins and cash flow. All the other financial metrics you can forget. […] if you have a product with high gross margins, and Fairchild did, it generates huge cash flow. And that means you can grow the company as fast as the market will allow. “

As most costs in a SaaS company are personell related (which is different from many consumer companies that have significant non-personell marketing costs), looking at revenue per employee as an overall efficiency metric is effective. (Jason Lemkin pointed out that if a SaaS company reaches $400,000+ in annual revenue per employee it should be cash flow positive.)

Revenue growth, gross margin, cash flow and revenue per employee will not replace all dashboards and metrics, but if those four numbers are good a SaaS company should be in a good place.

Author: Henrik Torstensson

Partner at Alliance VC. Investing in Nordic early-stage tech startups.

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