 Hello, so I'm Thijs from Amsterdam, and I just want to say hi to my three-year-old kid Who's watching on a live stream at the moment, so I loose Yeah, so let's get started So imagine You run a SaaS company. It's like the third month of your existence And you wake up in the middle of the night and page. You're just calling you That the server is down and the only other person who can actually fix it It's not it's an holiday in South Asia So you spend an hour fixing this thing you go back to sleep and you wake up really groggy And then you find five support issues in your inbox And actually you can make no progress on the feature you're working on but then you will really look forward to And then like like at lunch you get an email from this old freelancing Client you had who was offering you a super lucrative job And you're thinking like why am I doing this again? And this sort of like emotion is what I want you to focus on during the stock. This is That's what we're really going to delve into So let's get started with some definitions. What's says? Sass is software as a service. So it's it's software you deliver over the internet On usually a monthly basis So somebody pays you some money and you solve a problem for them and they have no hassle They can just use the thing we are really thinking about it too much So you're all familiar with a number of these these sass companies that you see all basically use the exact same business model that we use as well and This one you're probably not familiar with the long slow ramp of death and We'll get a lot deeper into this in a bit, but it comes down to It describes the revenue curve that you will see in a sass business in the early years And it's called to the ramp of death because Because your costs are pretty high and then you kind of have to slowly grow up to the base level of your costs So you are all by default that Most of the way So this is my sass. It's called app signal and it's the best monitoring tool for Ruby and elixir teams that want to build a really high quality application So why am I here talking about this? And I think if you were here this morning Sam talked about this a bit already as well like it's it's I love the technical stuff I've actually done technical presentations mostly, but in the end It's all about like what what what technology is really doing in the world and So so we need I think we need to think a bit more about the context around it as well so I think you have four ways as a developer to make money and Doing a sass is one of them, but let's look at the other ones first So you can work as an employee and I've actually I'm in a fortunate situation that I I've never actually had a job because I started a Client services company straight out of college So I'm not super familiar with this, but like people tell me it's it's about It has some pros and cons So you always get paid unless your employer is going bankrupt in that case you're out of luck Another really big upside is that if you Play your cards well, you can find a team of people that you can learn from and they'll help you grow as a developer Banks will allow you to get a mortgage And you usually don't have to make all your own decisions. So if you're A person with pretty low stress tolerance, it can be nice to just like close your laptop at five And have somebody else worry about the impact of the stuff that you did This can also be frustrating so if you are the type of person that that wants a lot of control of their work It's really coming with a frustrating if somebody's making decisions for you So if you get a new boss or something like that You might totally spoil your work the pleasure in your work Same goes for new hires Maybe you don't have influence of the whole hiring process and you end up with some people on your team that you might not like or cooperate with well Finally, you're probably not going to become financially independent this way So the second way is working as freelancer so The big upside of that is that you you can make a super good income in the current market So I have some friends who do this and they're basically just just paying off a House in Amsterdam, which is pretty expensive in a decade just by work by running a lot of billable hours You can move around between between projects a lot So that can be nice if you're into that This is another one of those that's that can also be a calm based on your personality type so you do You cannot really invest it to a code base for a very long time And some people I know end up just paying off a lot of other people's technical debt all the time Now the first option is basically a skilled a version of freelancing. So this is something me and my co-founders of app signal did for for a number of years before we started product company so This business model is basically like freelancing you get projects from your clients They pay you per deliverable or per hour, and then you send the bill after doing the work and basically that's it The pro here is that you get paid pretty fast And you can make a lot of money at this if you do it at a small scale if you're still with three four people And you're all billable all the time That's that's a really good business And you can also make money at this at a larger scale. So if you're above 20 people, it starts becoming really really lucrative again The con is that that there's the medium skill in between these two things is really quite awful because there comes a point Where you where the original founders have to spend so much time on project managing and making sure that everybody's happy That you're not billable yourself anymore, but if you don't have enough people to actually compensate for that You basically make no money But the biggest downside of this business model is that you will encounter the client services dragon as I like to call it So this dragon is about This dragon is about Represents the pressure you have to actually get a lot of jobs in which you need to pay everybody's salary So you're hiring these people you pay their salary and then But then you do actually need need new projects all the time to feed to the dragon and this leads to Something I call the great people paradox So this dragon is hungry. You always need to feed it And you you actually sell Sell projects to your clients based on the great people you have but but then But then you actually need new projects all the time to be able to pay these people So that means you you sometimes are in a position where you need to take arms on some non awesome jobs and Your your employees will start hating you for it because they they are in these in aspiring projects all the time Then they have an incentive to leave and they can really tumble down into into a situation where you are Where you have need or not a good customers nor employees I'm a clicker is messing up a bit So yeah, this is the right slide So the fourth option is the one I like best But it's it also has issues is running a product company So when we got started we of course looked at the base camp like everybody does And we tried to emulate what they do and the HH has a really great presentation Back from 2008 Where he kind of goes against all venture capital model where you just go for growth sake And and he came up with this. I think it's pretty good joke. So so so what's the thing in between? It's price just having a price. This is a really important thing for running a product business and Of course, it really worked for him because if you can afford having a racing team as a hobby you obviously did something, right? But I think this is not a complete story. There's actually a really crucial component missing here And that explains why so many product companies fail So this is us like back in the day before when we were still naive and thought this whole thing will be easy And we actually had no idea How this whole product thing would work So back when we first had a client services agencies agency We had some like other product ideas before we started doing app signal So and then naively we thought we could combine these two things So here what we tried before we did the app signal So we tried to turn clients work into a product a few times. So for example, we had one e-commerce Reels engine That we sold to some fashion companies and we basically just built websites for them based on this on this core But it ended up being such a spaghetti code base with stuff for each customer for each client in the main code base So we were unable to sell it already or open source it to do anything useful with it Secondly we had we had a bunch of projects with partners that did the business side So we thought okay, let's build this thing and we don't know how to market So and then we met these people who were supposedly good at marketing What often happens then is that you built this thing and then the people who are supposed to sell it Are actually really not that good at selling it. They're just sell good at selling themselves to you so then you made to use investment and and basically you get nothing in return and That can be really frustrating probably a lot of you have been in that position Thirdly we started loads of projects, but we didn't actually ship them So this is probably something we're also also familiar with if you do if you try new product idea the first 80% is awesome You do it over the weekend and it looks like it's almost finished But then actually finishing at the last 20% is super hard and takes weeks So that's a that's a really huge bump. You have to go over to be able to ship anything So then we just gave up We thought like okay, let's just let's just Become a really good client services firm But that we were sort of unhappy about this, but we just did not really see how we could do it So what happened then is that that to keep our People happy we introduced 20% time So we give even though like these people made maybe not we're not working on the most amazing projects all the time At least on Fridays. They could work on stuff. They found interesting and Then something happened We had this idea for for a product and it's this is pretty interesting. I realized when Listening to David's keynote yesterday that x the absolute is actually based on complexity compression. So in wheels free Excess port notifications was introduced Which let you plug into the instrumentation framework of wheels without running a lot of monkey patches And that actually allowed us to to do a project product initially because like our competitor or the main companies out there at the time Would would have a bunch of monkey patches and like replicating that and actually supporting it will be super hard But because active support notifications existed we could just hook into that and that might make life much easier So I think you can really see the complexity compression principle play out in reality here So now we're finally arriving to the actual topic of the talk The long slow SAS ramp of death So this is the the woman who came up with this concept. She is the CEO of constant contact Which is a which is a male email Mating list delivery software as a server platform and they started out in it's basically like milk milk chimp They are probably more familiar with and they started out in the 90s We still had to do your own credit card processing and like build out a lot of stuff, you know buy service from son You know, she's seen it all She did the presentation three years back that introduced this concept that really inspired us and like made us see that this thing was actually possible So Let's look at what this thing actually looks like So this is this is a pretty typical long slow slow ramp of death You'll see that it's there's no hockey stick here. I think that's one important aspect of it We'll get into the why of this in a bit You just see a really slow curve trending upwards and this is Is this is the costs you have in your business? so the cost or a combination of salaries for example, you have to spend on product development and Direct costs are such as hosting So actually red reality, it's a bit more like this You'll see that your cost slightly increase as you as you go with the big core of chunk of your costs is It's just salaries or the opportunity cost of the people that are working on the product So this is the reason most SaaS companies fail so you you start out with a pretty high cost level and And basically no revenue in the beginning and you can market and sell as much as you want You're never going to be fast in actually getting to the point where you cover the basic costs So I think a lot of people who do products never make it out of this this first red corner The reason for this is that people are expensive So if you if you have to pay salaries Well, you all know how much developers make and designers as well So so but they work as an employee, but even if you're just doing this yourself You have to take opportunity cost and into account So you might have a freelancing job or you might have a good corporate job if you're not actually Making billable hours You will have less money your bank account at the end of the month So even if you sort of do it for free by by working doing the work yourself, you're still actually losing money so the second part of this is So this explains what a cost level is is is pretty consistent and also high from the beginning We haven't looked into into the reasons why this the revenue is going slowly yet and There's some theory here. That's really useful to understand also also if you ever talk to an investor about But a business like this they will use these words. So it's pretty pretty handy to know what they mean So the first one is customer acquisition cost And customer acquisition cost is a grouping of all kinds of money that you spend to get new customers. So it's Just just general marketing. It's buying Google ads. It's running time. You spend on writing blog posts doing sales It's a bunch of stuff And you group it all together So part of this you can really measure So if you if you are looking enough to be in a business where you can put some Google ads all Up and people will sign up for a trial You can really like calculate exactly how much you're spending on this trial in our case that doesn't happen so much So so so you kind of have to bundle up all this this combination of direct and vague things you do and just Just add them up for the whole month And they divide that by the number of customers you've got in that month So I was really happy that I was still able to slip in some Ruby code into this presentation so Yeah, you'll see the calculation here. So in this case we spent five thousand dollars on acquisition cost in the given month We gave a thousand dollars of discounts This is usually add this to the acquisition costs as well And then we've got further new customers and then you sum up the acquisition the total acquisition costs plus discounts And you divide that by the customers and you end up with a number So that's the first part in the whole big calculation of They were going to dive into The second part is average revenue per unit. So this is just a fancy word for how much money are you making per customer? Super simple calculation. You make ten thousand dollars in revenue. You split it by two or not customers Next up is gross margin This is also Actually very simple concept is it's about how much money money you have left after running the servers So here you you make a distinct make a distinction between direct costs and cost of product development So in this case you would include things like Like Google app, sorry like customer support like paying an email delivery service buying hosting Basically anything that you really need to operate the service for the specific customer But you do not include product development at all So if you build a new feature that that will be useful for multiple customers, that's not in here So let's look at the calculation So you have again a ten thousand dollars in revenue You're spending two thousand on the red costs and you calculate the presented percentage of that So in this case, it will be 20 percent Next up is churn. So this is how many Customers cancel each month and then you look at the revenue look at that as a percentage of revenue So if you have a few customers, you take the plan value that they have and you look at how how that compares to the total revenue You have at that time so in this case We lose eight hundred dollars revenue a month and again we calculate a percentage and Churn, you can use we don't use it in the calculation directly, but you can use it to Calculate retention and this is really a key thing in in running the SaaS as we'll see in a bit Retention is about how many months your customers stick around so the longer the better And the easiest way to calculate retention is by running the middle loop like this So you just to keep deducting this the term percentage from your base Baseline until you reach a number of months where there were kind of leashes zero and then all these numbers combined lead to the king of metrics for software as a service company lifetime value and lifetime value is calculated like this. So you take the Multiply the average revenue per unit With retention and you multiply it with gross margin and you deduct the customer acquisition cost from it so I Made an example of a pretty pretty typical use case for these For for a customer that might happen in the real world So you spend you're spending two hundred dollars to acquire the customer Then she signs up for a fifty dollars a month plan and then she turns off using the product for twenty eight months Which is really long by way. That's that's That's a really good score Then you made fourteen hundred dollars in total revenue You spend ten dollars a month to actually run the service and pay for hosting and so on so that's 280 in total And then you actually made in the end after twenty eight months You have a total balance of making nine hundred and twenty dollars under customer So this is this is pretty cool. You made over nine hundred dollars Not bad Like e-commerce companies will be super happy about this number But now we're getting back back to the long slow ramp of death You didn't have to wait five months to even break even because you had to yet to make back that customer acquisition cost That you that you spent so it takes until until month five until until you're actually seeing The balance in your bank account increase so That's pretty challenging and and from this follows this statement The money in in supply as a service is ready in keeping customers super happy for a very long period of time because of an existing Customer you already paid off the acquisition cost So the longer they stick around to better the margins on this this customer are actually going to be so Whatever you do you need to make sure that that your turn is low and that you're actually providing a super awesome service to all your customers Otherwise you end up in this situation where you just keep Spending a lot of money on acquiring new customers, but when they drop out six months later You maybe didn't even make any money on them because they they just didn't stick around long enough so This leads to pretty interesting situations where you could have a sale for a $10,000 lifetime value of customer You're super super happy you pop open champagne But actually like if you just look at the revenue for that month where you close this customer You're not going to see anything you might even see depending on the situation You might even see a dip because you first have to make back the acquisition cost So that's that's pretty counter counterintuitive like sometimes even do a lot of really good sales Can actually lead you to lose money over the first three months Yeah, so this happens, you know, you make the awesome sale and and basically you don't see any any anything happening in the graph and Yeah, so so this is sort of a problem even if you do everything exactly right just still struggling And you have to be super patient so this leads us to the mission so so How can we actually survive this so so the the the world is really awesome like once you climb the ramp It's you're in a really good position because you have a basal base of revenue They just keep adding on top of that and and that's really nice But you have to have you have to have some you have to have you have to find some way to actually make it through the first part and Just to illustrate how dire the situation can be this is the two first two months of app signal So as you'll notice in the first month to Clemens, which is a friend of ours He actually signed up. He was our first customer. That was awesome. We made 50 euros Next month we doubled our revenue, which is a super good growth percentage. And then we actually made 16 So 350 you'll see there is tax So yeah You know, you cannot even buy lunch for for the whole team with that kind of money So, how do we survive it? So, uh, I don't have all the answers here, but I will share some stuff that that we find useful So we did a lot of freelancing. So this is probably not what you're hoping for We just financed the whole thing by working for for other clients We decided early on that we just do it on an individual basis because we're really not passionate about product company anymore product company anymore Yeah I wish it were different but That's why we did it Second thing we did is just being super cheap So, uh, we didn't have an office. We spent no money I actually uh had the same laptop for like more than two years, which which had never happened to me before Since I was 18 or something Um, we did meetings at a train station, you know, it's it Uh, you you just have to be really picky about what you spend your money on This is a huge one if you can get some customers that pay up front That's that's sort of like getting an investment if if somebody believes in you and they pay you for the whole year In the first month, you actually make back the acquisition cost immediately and you have some free cash You can use to uh to to invest in some stuff that you otherwise couldn't have done So this this I think this is one of the like if you take one thing away from this If you really do decide to start your product company Like really focus on trying to get some customers to pay to pay a big turn of money for the first year Another advantage is that it will show you if you're really on the right track because if people will commit to something Like this, you know, you're probably really solving a problem for them This was a pretty hard one for us as dutch people So we're we're we come from a culture where you're there's quite a lot of pressure to be sort of modest and not And not be like too too bold about stuff that you cannot actually execute on yet Like this this is something we really needed to do So we we uh, we actually sold the product to some to a customer that had to cancel the deploy three times Because our infrastructure just just collapsed the moment they turned it on Um, I think like if you if you're like sort of upfront about it afterwards and really really work hard to fix it That can be okay. It wasn't our case Um, at some point we actually took a bit of money from some advisors So we took we asked some people from the local local startup scene to just help us a little bit And they were interested in also providing a loan that that they might convert to stock later on And that was really useful to to scale the company up a bit faster Now we're getting to some more like classical startup advice, which which you'll see Everywhere, but actually we didn't we didn't actually follow it that much So I think it's it's still worth repeating I think like as developers like a really big pitfall is that we are good at writing codes. So So if you see like a problem in the business Early on you're really tempted to solve it by by writing these scripts to fix it But actually in most cases you're better off just just spending an hour a week I'm doing the task manually So like don't write out the whole bidding system or whatever They will they will totally slow down your product development because you'll have all these code bases to maintain and I'm probably they're going to change so much anyway that there's no use in in building out the thing in the first place Yeah, talking to your customers is huge Both to learn about like what the product actually should be But also to stay motivated if you If you if you hold up in your Little room all the time you can get a little bit depressed And if you actually speak to these people that use your product and they are happy about it that can provide a lot of energy This is Something that we really did is like we we build something for people we like So I think this can also help really help with motivation If it's if it's crowded people you understand that you feel something for that that makes it a lot easier than than just picking some random People like I don't know like if you if you don't really like lawyers and you're building a product for lawyers You're probably going to have less fun time than if you if you actually like your customers Writing a lot of content. I think the ski especially if you try to sell something to the developers like I think more and more markets Just just trying to do ads and like pushing your message into people's faces. It doesn't really work So so so if you have good good content out there People will find you and will have positive impressions and and maybe at some point they will they will think like hey, why not try this product? The last part is Is about vision and and the way the brain works So I think this this like understanding this part has been really beneficial for us So let's go back in time to about four million years ago Like this this is the time when humans first started Climbing out of trees and going going out on the great plains And they luck and they looked at the spot at the horizon actually went there and that's I think it's Really the main thing that divides us from from the animal kingdom The rest of the animal kingdom is that we actually sort of can have a vision of the future And I can take steps to to try and achieve that vision And and I think this really helps Like my colleague west came up with a metaphor That that that like doing a product is like being in the desert between two oasis And even if you're halfway there, it can still be really tempting to go back like if this Old client of yours is Is doing you this great offer? You have to be you really have to know why you're still still on this path for you to be able to say no And this all comes down to To the way the human brain works. So so generally the human brain has three layers So you you have to be all the very opera pillion brain, which is about physical safety And about the fight on flight response And you've got the limbic brain, which is about the social part And the cortex, which is about the intelligence and can have this vision So humans can actually use this cortex to have this vision and take steps to to reach that But this only works if energy is actually directed to the cortex So so you need to be physically and socially safe and both are pretty hard if you're on the long slow ramp of death So physical safety is about It's about just having a roof of your head and being able to provide for your family that kind of stuff And this is by definition pretty hard because your your your company is dead by default You need to find some way to scrape some money together. So it's always stressful um, and I think the main thing here is communicating about it and Try not to feel bad about feeling bad. So this is pretty painful and as long as you don't really feel Uh stressed about feeling stressed. I think uh, uh, it's a lot better Also, I think like the most people in this room Always have a fallback because we're developers. So so we can just go back and make money. So for me that really helped that Just this feeling like okay, if this fails, I'll at least be able to make some money again as some other gig And the next part is social safety so, um Look, uh, this is the second layer of the brain if if you're in a situation where uh, uh, people are um We're just your team dynamics are off or people are kind of like playing games behind speaker people's back It gets really hard to execute this vision Uh, so there's a bunch of things you can do to uh, to uh, to make this better So one important thing is just like really appreciating that people are different I think in the beginning we had quite a rough time working together Because we just have some different personality types Uh, and it's and if you don't really like understand the differences there We can you can lead to a lot of conflict because you're always in this special special situation because basically your business is not working Uh, one thing we use a lot is the disney brainstorming method um That's a way of of uh, of having a conversation within the team where you where you have three distinct faces faces You first focus on uh, Authenticizing like imagining how awesome this thing can be They do a phase where uh, you talk about the realistic implications of it And finally you talk about the risks And the nice thing about this is that people that have a different emphasis in their personality type on one of these three aspects Uh, know for sure that they will get their say Uh, otherwise you'll often see that you have a uh a brainstorm session And some people are talking about risk and other people are fantasizing at the same time which can lead to uh big confrontations I'm going to skip this so, um Yeah, so I think my message here is realize realize that spending time on making this team structure right is very important It's going to be a long road. It's going to get messy and you're going to have to be stressed and uh, and uh Making sure you're doing this with just a bunch of people you really like and appreciate this is I think really key to to success Yeah, and once you get these two levels of uh safety taken care of you can really execute this vision So we spent a lot of time really thinking about what kind of company we wanted to be And we still uh, uh, and we still prior prior periodically revisit that So that's that's about all I have for you today So my conclusion, I think from a few years of running a business like this Is you need to be super patient It's it's pretty brutal to actually survive the first part of the long slow saps ramp of death Once you're past this base cost level It's it's awesome because then the whole thing that's that's working against you in the beginning Is actually working for you in later stages of the business because you have this huge Uh amount of revenue that that's just a basis for everything you're doing You don't really have these problems with financing the growth anymore Because you already have good margins It helps a lot to make a product for people you understand and like Um, and finally like I'd really emphasize thinking about exactly what you want to be And how you're going to get there and make sure you have the team dynamics in place to uh to actually make that happen So I'd like to close up with uh A nice inspirational quote from some I actually forgot who came up with this, but I think it's an old Chinese pro verb So, uh, I think this is really the right way to think about it. Yeah, it's like planting a tree You it will take you a long time, but it will be worth it if you do Yeah, that's it. Thank you