Original Post From Jason M. Lemkin
There are pros and cons, in these days of Fat Start-ups, to being cash-flow positive. In an ideal world, you’d experience both hyper-growth, and free cash flow from almost Day 1. The reality is though, in SaaS, especially if you are sales-driven, that’s often gonna be tough. You’ll need some capital to get either off the ground, or to get the engine really humming, or both.
Then, past a certain point, you’ll probably be able to operate cash-flow positive. Whether that’s good or bad, let’s talk about later. But at least having the option is a good thing.
So if you’re building a model for your SaaS start-up, or thinking about cash-flow positive as a goal, let me offer a few learnings about how we got there faster:
For most SaaS businesses, after month 24 or 30 or so, Renewals + Upgrades/Upsell combined will account for the majority of your cashflow. So the real key, to boil it all down to one factor, is to Take Care of Your Customers. Extremely Well. Cash flows straight from that, as this is your highest margin activity in Years 2+.
Then apply people and processes to that, add in a few whales, prepayments, an upgrade engine, and maybe some debt … and you’ll be in good shape.
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