Hello WSO Team,
When looking at a company that engages in SaaS and serves a specific niche, how do you look at the levers and drivers of the business? I would automatically assume that the #1 driver would be the industry performance in which the company operates out of. That said, and taking a deeper approach, what additional research would you do if you had to interview with a Director of Strategy/FP&A or Operations?
Much appreciated!
Hi 512Finance, any of these topics helpful:
You're welcome.
Difficult to tell but you would look at the usually suspects in terms of metrics: Bookings, Billings, CAC, LTV, Churn etc.
I would do a Booking/Revenue ratio over time to get a sense of how healthy is the growth of the business. SaaS businesses usually make for pretty smooth revenue charts but terrible when it comes to cash flows (companies usually do multi year contracts, prepayments etc which have a tendency to distort the pretty picture the IS is painting ;) )
choubix (and choubix2 ), thank you, how would you use Booking/Revenue? What is good/bad for that metric? What does it show? Thanks!
If booking/revenue ratio goes down over time, so will revenue in the long run. A company may show healthy revenue growth but not present its bookings because they are stagnating which will point in the direction of less revenue (and cash) in the business later.
If they do cohort analysis I would look at payback period: how long does it take for each cohort (after deducting direct costs) to payback the S&M cost incurred in their acquisition.
Often overlooked, a key factor is the sassiness of mgmt
Is there a specific niche you had in mind? Or any niche, just in general?
I wouldn't waste time with any of those titles. Too far up in the ivory tower and have their heads stuck up their asses.
Catch a meeting with the VP/Director of sales and then with a few salespeople. They'll tell you current market conditions, how the market is changed, new competitors, and why their customers buy.
As well (the most important) the pipeline going forward and how customers are reacting in the moment.
If you talk to a director of strategy could give you some bullshit story citing customers that were won a decade ago right as their competition is about to kick their ass.
Churn right around 5% year is good. Most noticeable factor is revenue growth % year over year. Should be double digits for a healthy company (20%+ if 100MM+ revenue is good, unless they have gotten complacent or the market capped out).
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