Finally, Some Good Fads – Unit Economics and Capital Efficiency, Part 3
Here we are, deep in our exploration of unit economics and capital efficiency — mostly for SaaS companies, but with applications to others. Apparently you’re still with me. Thanks for hanging in there.
To catch up:
- Unit economics is really about how much it costs to sell (mostly) and support (some): feel free to review Part 1.
- You actually can drive down your cost of selling instantly by a factor of 3, just by:
- Using sales for selling, not for developing future sales people.
- Using sales technology to completely eliminate the biggest source of waste — your expensive sales reps navigating phone systems to nowhere.
Even if you have “very challenging” unit economics, a 3x improvement is a good thing. Maybe even good enough. But…can we still scale?
Time Out
First, I would like to make a distinction between “scaling” — which means “increasing or decreasing as a function of current size” — and “growth” — which means “getting bigger.”
Investors disdain “linear growth,” where the same amount of revenue is piled on top of the current base. They do so for a simple reason: linear growth means that a company’s growth rate — its growth divided by its current size — keeps shrinking. Given that a big factor in a company’s value is its growth rate, persistently shrinking growth rates means a company’s value gets crushed over time. This is not considered a good thing.
Back to the Question
Anyway, the answer to “Can we still scale?” is a simple “Yes.” It turns out that AEs can be hired to sell your exciting SaaS product and apprenticed to currently successful AEs. The more AEs you have, the more new AEs you can make in each apprenticeship cycle. If you want, you can double forever. (Of course, you have to hire each cohort, and eventually that becomes unwieldy — but not as unwieldy as managing the combination of thrash, entitled wheedling by SDRs insisting on promotion in four months, and top-of-funnel starvation that characterizes the “standard” scaling model.)
So what does all this have to do with capital efficiency — that thing that investor boards of directors never used to mention, but now open and close each board meeting with? Stay tuned for the wind-up in Part 4.
