So you want to scale your company to $100 million dollars in annual recurring revenue? Well Bessemer Venture Partners lays out a great playbook although it's from 2021 and the 2023 metrics that the current capital markets are asking for are a small or giant leap depending on where you are in the growth stage of your cloud or saas company. Some of the great things the playbook describes is:
"Enterprise segments tend to have long lifetimes and therefore high CLTVs and SMB short lifetimes and therefore lower CLTVs, thereby supporting significantly different customer acquisition cost structures."
The other great metric that is often overlooked and not talked about because a focus on growth at all costs and a ton of cash being thrown at getting there no matter the method as long as growth of ARR is achieved is Cash Conversion Score. If you can build a company with a great CCS then thats a company that I would want to invest in. Below is BVP breakdown of cash conversion score:
"The Cash Conversion Score (CCS) is another metric that we often use to evaluate whether or not the capital that cloud companies raise and consume is generating a meaningful return. As the ratio of the ARR to total capital invested into a company minus cash, the Cash Conversion Score is effectively the return-on-investment of each dollar ever invested into a company. For both founders and investors, the Cash Conversion Score is, therefore, a powerful proxy for returns. If a company has a CCS of 1.0x, one dollar of investment into the business yields one dollar of topline recurring revenue. If we assume that the average cloud company gets a 10x revenue multiple (more in-line with historical norms vs. the 23x revenue multiple of ^EMCLOUD today), the one dollar of revenue multiplied by the 10x multiple equals $10 of enterprise value. Every dollar put into the company is getting a 10x return. Similarly, a company with a 0.1x CCS would only return the capital invested. ROI is not driven by Cash Conversion Score directly, but CCS indicates multi-year trends in a couple of incredibly important things, including product-market fit and a scalable sales and marketing organization. It is therefore a core KPI we track in evaluating cloud businesses.
The average Cash Conversion Score for cloud companies tends to increase as it matures, from an average of almost 0.5x from $1-10MM of ARR to almost 1x at $100MM+. For cloud companies, revenue generation tends to lag spending and only the strongest companies will scale to the $100MM+ mark where they are seeing the most leverage from their operating model.
One of the strongest companies on this metric—from the start—has been our portfolio company Zapier, which has raised only $1.3MM in its lifetime and announced in March 2021 that it exceeded $140MM of ARR. While we don’t hold every company to this CCS efficiency, we look for companies with best-in-class CCS of 1x+.
To increase productivity in an organization will allow you to go from 50 clients to 5,000. It will allow your teams to free up time and work on doing things that are well productive. Below are 4 ways to increase productivity:
1. Reduce duplication of effort 2. Increase our skill levels (More education, Implementing Software or Operating Systems) 3. Greater access to information. Get it faster 4. Implement a new methodology. If nothing changes then nothing changes.
How can you increase your companies productivity and get ahead of the competition not behind it?
My good pal and self storage guru Ryan Blank deserves accolades for all of the great storage unit deals he's lined up for me over the last few years. Including one in an opportunity zone in Hyattsville, Maryland in Prince Georges County MD. not too far from Owings Mills and Pikesville where we grew up in Baltimore county. The project's pre-construction process was started last year when we closed on the development of the project and financed the balance using Peoples Bank.
The mall at Princes George's has a Macys, Target, Old Navy, DSW, H&M, TJ Maxx, Express, Ulta, Ross, Marshalls, and soon a self storage facility for our fellow PG County residents.
Ryan Blank has spent the last few years in business development and investor relations for the Poverni Sheikh Group based out of Baltimore. In a fairly short period of time, he has had a very specific focus on self-storage facilities and has helped build up a nice portfolio including this project I invested in located outside of Washington, D.C.
Fortunately from the very beginning, he has found a ton of great opportunities and so far they have all been big successes, as he is building an impressive portfolio up and down the mid-atlantic region from New Jersey, Pennsylvania, and Maryland.
The journey to getting where he is today took knowledge, work ethic, and dedication to becoming an expert in self-storage facilities and reminds me of the book Relentless where those who strive to be a king of their industry have to put in the grit and hard work to be successful. As he continues to grow, Blank and the Poverni Sheikh Group have continued to grow and expand.
Taking the Next Step with the Poverni Sheikh Group
Getting to the Poverni Sheikh Group took a little bit of time for Ryan Blank. He worked in finance, real estate investing, and other sectors of the business world before getting into business development and investor relations with the Baltimore based firm. When the opportunity opened up, he felt like it was a perfect opportunity to make the most out of a situation utilizing his skills to help others prosper and join in as LP's to build storage units.
If there is one aspect Blank fell in love with early on, it was fundraising. Getting the opportunity to work directly with investors can seem intimidating to some, but Blank relied heavily on his confidence that any project he presented could take off (and so far that has been the case). Proper funding is necessary to make dreams into reality, and Blank’s mastered that at this point and investors like myself have been very happy with the results.
Growing with Each Project
To keep investors interested and to please the Poverni Sheikh Group as a whole, Ryan Blank is learning to grow with each project. A relatively new completed one in Woodbridge, New Jersey ended up being a perfect example of being patient and finding the right investment opportunity for the company.