About Prasanna: Experienced CTO- 15 yrs Industry experience. Last 3yrs CTO at Microsoft Venture (largest accelerator in India). Prev: Product @ Amazon, Architect Elina Networks, Entrepreneur
Listen to the podcast to learn about:
0:50 - What does Upekkha do?
02:50 - “You are the easiest person to fool”
06:50 - High quality customer discovery
10:08 - Principles of Value SaaS
11:41 - Re-earn your customers every month
15:30 - Accelerating your customer acquisition process
19:10 - Value based pricing
26:00 - Planning exits
31:00 - “Today’s tech leaders buy tomorrow’s tech companies. Yesterday’s tech incumbents buy today’s tech startups”
Read the complete transcript below :
Welcome to the Prime Venture Partners podcast. Today we have with us Prasanna Krishnamoorthy, a friend and a person that I’ve known for many years. He is a co-founder of Upekkha, a SaaS accelerator, and his title there is a very interesting chief bullshit detector. We will get into that. Prasanna, welcome to the show.
Hey Amit, thank you for having me over.
Prasanna, tell us a little bit about what Upekkha does. And then perhaps double-click on the top bullshits you heard over the years, both as an investor and as an entrepreneur.
Absolutely. So, thanks for having me over. And, what does Upekkha do? We help B2B SaaS founders build what we call value SaaS businesses. So essentially, figure out how to get more than a dollar of revenue with less than a dollar invested and the ideal scenario of that is, get more than a dollar of recurring profit with less than a dollar invested. So that’s the Holy grail. And so founders who are able to do that, are essentially able to build an enormous amount of wealth for their employees and themselves and their investors.
Great. So talk to us about some, I know you have a t-shirt and a logo. It says no vanity SaaS, and value SaaS, and also this bullshit notion. So talk to me about some of the myths and some of the things that you have figured out in your bullshit detector, natural intelligence algorithm.
Sure. So, there’s a wonderful quote that I’ve read and it strikes me as true, it is “the easiest person to fool is yourself”. So I think the biggest person who drinks the Kool-Aid for any founder is themselves. So you are the easiest person to fool. And as a founder all of us, and myself included, we tell ourselves how the future is going to be. And we try to create that future. And in that telling of the future, the future is not there now. So we all take liberties with, what we think is the now versus what we think is the future and we fool ourselves. Sometimes that fooling ourselves extends a little bit too far, and we forget reality. And that’s where, what I realized is, in my instincts as a founder in early stage startups, lots and lots of very,very smart, very, very, good mentors, they would very nicely tell us something. That whatever you’re thinking is wrong, whatever you’re saying is wrong, but they would say it in such a nice, polished way that we as founders who have drunk our own Kool-Aid, we wouldn’t get it.
So then when I started mentoring some founders and started talking to founders, I realized that if I couch my words and if I start off, say things in a nice way, then people don’t get it. So I have to basically be very blunt and say, Hey, this doesn’t make sense. So for example, as a founder, when I was there, I used to say, look, we can sell this to a thousand enterprises in India and, you know, we’ll just do it. It’ll take 40 days for sales, multiply that and say, we need so many sales people and here we’ll be at $5 million in revenue and that’s all it needs and so on and so forth.
And then, at the end of the day, like all these enterprises are not ready to buy. And all these enterprises are not going to pay you a million dollars or half a million dollars. And all these enterprises are looking at alternative solutions as well. And maybe my solution is not the best in the market, or even more precisely, maybe my solution is not the best suited for each of them in the market. Maybe my solution is only suited well for 5% of that. But you know, by force of my own will I believe that I can sell it to a thousand people at a half million each and get to that 50 million or 500 million or whatever it is. So that becomes a way of fooling yourself. And in Indian kind of a context, in the US people are very blunt in general. And of course, Germans are supposed to be the most blunt, but in India it is used to be seen as being nice to you by being not blunt and being very kind to you and so on, so forth. So when I had that realization, I said, okay, the one thing that I will not do is be fake nice to people by not telling them what I think about their startups in terms of unvarnished truth and call them out on bullshit, on their bullshit on how they are potentially misleading themselves.
And so, I’ve had a founder who was essentially building a business where they were doing something, which was a last mile transport on top of long distance transport. And so we are talking about maybe a hundred rupee auto ride being arranged on top of a thousand rupee bus ride. So they were telling themselves that, with that a hundred rupee auto ride, I will get 10 rupees out of it and how will I scale it and stuff like that. So I had been trying to tell this guy very nicely that look, the economics of this simply don’t work. There is no margin for you in this anyway, and they just weren’t getting it. So then I had to sit them down and walk them through all the math, it took me like half an hour. Then three days later, he came back and said, okay, you’re right, we talked to ourselves and we realized that, now I can’t believe the old stuff that I was saying anymore. Like, I don’t believe it myself. We’re probably going to pivot and do something else.
To me that was like a good thing because these guys were like really, really good, technically, and then they were chasing this hundred rupee auto ride maybe five rupee margin and you have to do that for a billion rides a year or something to make any real money out of it.
And then they were fooling themselves and saying, we will raise money for this and we will do this at scale and stuff like that. None of it made any sense whatsoever. So there’s a lot of bullshit that we swallow ourselves. So how do we make sure that we don’t fool ourselves? and we don’t fool the team that we’re working with.
We don’t try to fool the ecosystem that we are in, but really focus on the customers and deliver value to them. And that’s where the money is.
So, building on that Prasanna, how do you do, high quality customer discovery of both the real pain point and the other thing that you mentioned was figuring out the customers, not only the pain point, but the willingness to pay and how many there are, like in classic VC terms I would even say bottoms up market sizing, but not like top down in the India is a $2 trillion economy.
How do you figure that out? Any tips or tricks?
So you’re not going to like this, but the way we follow is called effectuation and it’s completely bottom-up and it basically starts with one customer giving you one check. So I don’t believe in validation. I don’t believe in any kind of market research and stuff like that. The only market research that I believe in is a check, it’s cash. So if you have cash from a person who’s paid you because you solve their problem, then there is a real problem to solve. Then the question becomes, are there more people like that?
That’s what I’m talking about, which is that like your example, you said, Hey, look, I think there’ll be a thousand enterprise customer each of who will give me this, which I also completely think is bullshit, but I would say, how do I really figure it out? Because I could, go spend years and years and you get one check, two checks, 18 checks, but that’s it. So now at some point I need to say, are there enough of these people. Is this enough of a pain point? Is there enough of a value capture possible? Even along that journey? I don’t mean on Power Point. I mean like in the field.
Absolutely that’s the part that we tell them. So what is the second indication that this is a real problem? So the first indication is one person giving you a check, right? Second indication that this is a real problem which others have is you should ask that same customer for more referrals to more customers. And if they give you referrals to more customers and those people are ready to become customers that is an indication that more people have this problem. Now this requires that you are able to build a high quality product that actually solves their problem in a better way than anything else.
This requires that you serve that customer so well, that they are happy to take you to more customers. This requires you to build such credibility and trust with that customer that they are happy to take you to more people to solve them. Because compared to you, compared to me as an entrepreneur, my customer knows hundreds of people in that ecosystem, hundreds of potential customers.
So what does it tell me if they are not ready to introduce me to new customers? That’s not a good message. And I am in B2B, So in B2B the context is my customer as an enterprise. It doesn’t have just one person there. There are tens of people, there are hundreds of people sitting there.
And if I’m saying that not one of them will introduce me to another customer that makes no sense.
Absolutely. I know you are a big fan of this, and I’m a big fan of this metric called net promoter score, which is a leading indicator to see, would they even be willing to refer, should such an opportunity arise? What you’re saying is even the higher bar saying, will you take me there and to the next customer. But I think NPS is a highly underused metric in my opinion. So switching gears and talking about value SaaS. And in particular principles of value SaaS, which could be applicable to any B2B SaaS startup. Can you talk to us about a few things that you think, people can learn from this kind of movement?
Sure. So, just taking a step back, we think that software is eating the world, SaaS is eating software, the analogy or the metaphor that we use is that software is like the nervous system for your body.
So 40 years ago, somebody manually wrote a lot of custom software and used that to activate your business. But that software was not malleable, that software didn’t change. If you had to change that software, you had to put a change request to TCS or IBM and they would take months to change that software. And so therefore that software became a steel frame, which kind of froze you into a particular operational workflow in many, many cases. And the irony was much of the software was actually copied from processes that evolved a hundred years ago. So you had a process in your factory a hundred years ago. You encoded that same process into software, that software became a steel frame. So suddenly in 1995 or 2000 or 2005, you are using software, which is codifying a process, which was created a hundred years ago. The beauty of SaaS is that it has made you re-earn your customer every month. So your customer now can throw your software out every month.
So me as a vendor, I have to earn that customer back every month. With every use I have to earn them back because if they stop using it, they’re probably going to throw it out. And so as a vendor, now I cannot have such a steel frame of a software. My software has now to evolve with the workflows and the processes that the customers use and the ecosystem that they’re using.
So now what happens is that consumption of the software becomes far more important than it was 20 years ago or 30 years ago. So in that consumption model, who is King? The King is the customer who’s signing the check every month. So if you’re not delivering value to them in a tangible way, as my friend Amit Mishra says, he says it very nicely. He says, if you’re not delivering value on a monthly, weekly, daily, hourly, minutely, secondly, manner to your customer, then probably you’re not going to survive there. Because you are literally the nervous system for that business. And if every second year of software is not delivering value to that business, then how do you know that the next second they will renew? Because your product could be an API, which has been called every second. And so if your API stops delivering value, they’ll switch it out for another API. It’s no longer a steel frame. So that is the genesis of what we think about as value SaaS, so there are going to be tens and thousands of niches.
Which are each a kind of a nervous system for a different kind of a business. It’s all going to be software. Some of it is going to be horizontal software, but a lot of it is going to be vertical software. And in each of those niches, the only way to understand, to come back to your earlier question of how are you adding value to customers first?
How are you adding value to enough customers so that you make money, is by adding value on a secondly, minutely, hourly basis. And if you are adding that value, who’s the best person to tell you that? The customer renewing your business and therefore, how can we make sure that we are getting that customer in a cost efficient manner? How can we make sure that that customer is ready to refer you to more customers? If you’re able to do this, then you will build what we call the value Saas flywheel, which is, can you get customers cost-effectively? Can you get them to use more and more of your product and pay you more and more over time? Because it’s far easier to get a customer to pay you more over time, rather than to get new customers over time. And the hardest thing perhaps is to get the same customer to get you more customers over time. So customer referrals convert at a far higher conversion rate and they cost you zero, essentially.
If you build these three things. Then the amount of capital that you need to do this can also become more efficient. So you can make sure that $1 invested in some way, but that is from customers or from your bootstrapping or from VCs or from any other form of capital or whatever can get you more than a dollar of recurring profit. That’s the holy grail, because then you, as a founder can build a very, very big business.
Absolutely. So let’s double click on the customer acquisition. So one thing that you articulated very well is customer referrals. And customer satisfaction and customer value creation. You know, secondly, immediately hourly a new thing I learned today.
How about just organically? Because you have a certain aspiration for a rate of pace of growth. And I don’t even mean we’ll burn money off the rooftops and spend on AdWords or G2 or Capterra or whatever, but how would you recommend organically to validate and to actually accelerate your journey from a customer acquisition perspective and do’s and don’ts, but more the do’s I guess.
So, I think it’s far too easy for lots of founders, especially founders who come in without domain expertise, they start leaning on inorganic ways of boosting this. But the organic ways of boosting it and I was talking to another founder on Sunday I think, is take the testimonials that your customers are giving you, put those testimonials out in social media where their peers will see it, measure how many of their peers are engaging with that testimonial. Measure how many of them are coming to you through that testimony, see what impact that testimonial has on the top of the funnel, middle of the funnel and bottom of the funnel for conversion. And then you will start realizing that certain types of nudges work better at different stages.
And you can help your customers. If your customers are happy, they will be happy to craft testimonials that speak to those different things, which you can use at different stages of your funnel. And today, the beautiful part about a G2 or LinkedIn or anything, instead of just randomly talking about something that you think is a value prop for your customers, amplifying your own customer’s words, and they have far more credibility in that market than you do.
Amplifying that with money if required, can really show you whether, this end to end cycle is working. And if this end to end cycle works, then amplifying, it is possible today. Five years ago, it was not possible to amplify that, very hard. And how do you amplify word of mouth? I don’t know, I can’t tell my customer to talk to 50 people today. I can have them do a webinar. I can give them, put video testimonials, I can do pre-roll ads, which are testimonial ads. Flinto box is a great example of how they just have regular people talking about what they’ve done with their kids. And I think that must be working well for them, I see that all over the place right now, I have a four year old kid.
So that kind of a customer testimonial is something that I would watch rather than somebody randomly telling me, Hey, there’s a value prop of these things. Because if you see from that perspective as well, Tik tok and user generated content is like winning, compared to a Quibi, which is like a very corporate generated content. So why do you think as a founder, your words will be more meaningful for a prospect than somebody who else was their peer who they may look up to. And so for us, in the very early stage, if this is proven, then you can pour oil on that fire all day long. But if this is not proven and I’m bringing in people by hook or crook, hook or crook is not scalable.
Completely agree. How about, the other very interesting thing that we have spoken about in the past, packaging and pricing and even more interestingly determining the right price point. So especially if you get into a profitability mindset, let alone a growth mindset. Pricing is going to be very, very important. How do you figure out the customer’s willingness to pay and how much to pay? Any thoughts on that?
I think there are multiple layers to this, so I just try to do it a little quickly. See what you want from a customer is not just money, especially the early customers. You want to know that they’re ready to pay enough. You want to know that they can consume more and as they consume more, they pay you more. So value based pricing is very important for us. And again, this is in the context of B2B SaaS. Where your buyers are sophisticated people who want to pay you because they don’t want to be the product, they want to be the customer and they’re very clear about this. In this context if from your early customers, you have to understand that a testimonial is also a way for them to give you some money. A referral is a way for them to give you some money, because otherwise it would have cost you in CAC.
And then if you’re able to model it on a consumption and then that could be an internal referral as well, for them to start using the product more or paying you more overtime. So all of these are levers for you to improve the pricing over time. But is profit on a unit basis from a early customer is possible or desirable or doable? Probably not, especially not in the SMB or the really a very small business kind of a size that’s not feasible. In that case what you really want from them is one more customer. So if you’re an SMB, you probably know a lot of other SMBs so please get me more customers. I’ll think of that as part of the underwriting that you are doing for me.
But once you go to a mid market or an enterprise truly at a $10,000 plus price point, $50,000+ price, plus $100,000+ price point, that can become unit economically viable from a cost of acquisition perspective, from a servicing perspective. And the beauty of it is a mid-market or an enterprise customer company, especially a global company, for them paying somebody $25,000 or $50,000, or even $250,000 is not a lot of money in their scale of things. And that can get a lot of Indian B2B SaaS companies profitable very, very quickly because it’s all annual upfront kind of money. So that is how we think about pricing. So have levers, get people to consume more, get people to pay you more by consuming more, get people to get you more internal customers, get people to get you more external customers, then they’re paying you enough to prove that a profitable business can be built out of that.
Understood. What are any other levers other than pricing other than customer acquisition costs in the value sense of SaaS, any thoughts on that?
So, I think from a global context, not just India context, I think far too little is spent on how do you price upsells and how do you price cross sell and how do you price customer success?
Very, very quickly you are going to become far more of an expert in a particular domain than your customer. You are like diving deep into one aspect of one workflow of something that they do. But if that one aspect of that one workflow can get them 3x the value or 5x the value, how do you price that?
That is something that too many people are giving away for free when the customers will be ready to pay for that. So what we usually recommend is that try to add a customer success layer, which customers pay for outside of the base price. Try to add a professional services layer, which is certain number of hours that you’re working on things for the customer. You’re probably doing it anyway, but the arbitrage on that, because you understand that space much more deeply than your customer and how one hour that you are spending might save them 10 hours or 20 hours. And this may not be possible through the product. This may be a product plus thing, so you are up the product, but then you are up this best practice. Then you are going to be 10x more efficient. And what is the pricing of that, that can now be pegged to 10 hours of their time taking one hour of your time. And that 10 hours might become recurring. So 10 hours per month, that they are saving because of one hour that you spent once on top of your product, the pricing can be very, very high.
And so these are the kind of things around pricing, which will help you understand the customer better, because if they’re ready to pay for this, and then they give you a testimonial for this, then you become stronger as a business. And this can be fairly high margin in the Indian context. So it’s almost software margins, but not yet software. And this is going to be a fantastic source of new ideas for you to build and bake into your product because you’re building a real relationship with the customer who’s actually using your product and getting more value. So if I had to say the most underestimated part of the whole thing is, what am I adding as continuing value to the customer? How do I price that Increase in continued value? How do I take that from 1x to 10x is far, far easier than trying to do something at the top of the funnel with prospects who don’t know me and I don’t know them and I’m too small and there’s no relationship there and so on and so forth. And now with COVID I can’t even meet them there, It’s much, much harder. And willingness to pay for most people for services, even in the US for a one hour thing, which can save me 10 hours, there is a very high willingness to pay for all this.
Very interesting nuanced point, I didn’t think about it in that way. Wonderful. Switching gears you’re a very big fan of this week to week metric tracking. As is the case with pretty much anyone who has a SaaS startup or is an investor. Talk to us a little bit about the farming part of SaaS. What are the basic set of things? Obviously, everybody will do the standard metrics. So I’m not really going into that, but maybe a couple of subtle ones that you think that people should and perhaps don’t, or easy one that they could.
So again, I’ll come back to the same point around consumption. So the consumption bit is the most critical bit. If you’re not measuring your consumption and how many times people are logging into your system, what are they using it for? What output they’re getting out of it? That’s the one that a lot of founders are actually afraid to look at. Because internally they’re thinking maybe people are not using my product.
And so they’re really scared to look at that. But if you’re able to look at the consumption metric week on week, day on day, cohort by cohort, and you’re able to scale that over time, then I think that’s the most important thing from a farming perspective, if you know who is using your product more, you can charge them more. Even know who’s using a product less, you can go back and find out why and help them use more of your product, or maybe they were the wrong people to buy it. But that’s the number one thing that I see most early stage founders not do, which they should be doing on a daily basis.
Great, so as we come towards the tail end of the podcast here, let’s talk about the four-letter word, exit and exit planning and so forth. Given the whole, not just the value SaaS kind of thing, that you stand for but even for VC backed companies, One of the biggest criticisms is sort of exits, but I also believe that exits don’t just happen. They have to be planned, cultivated and managed. So talk to us about how you think about exits or even the kind of companies you work with and more broadly.
Yeah. So this stems from a lack of understanding of the landscape that they’re operating in. So most founders don’t understand the landscape deeply enough to understand how this landscape changes over time and therefore even if they are building a business and they’re trying to add value to customers, the way that they have to do that will change over time. Very simply, if you think about an asterisk, which was a very early startup, very early open-source product, which is around telephony, versus Twilio, both are doing the same function, but if you had built asterisk, it’s nowhere near where Twilio is today. Because the ecosystem has changed, the way people want to consume that 30 years ago, they might have consumed that as a service from AT&T 20 years ago, they consumed it as an open source server they stood up 10 years ago they just wanted to consume it as an API. Today they’re just consuming it as an API. Nobody even thinks about it, it’s even moving up one more level into where video call is something that you get via zoom API.
So, if you, as a founder, don’t understand how that landscape shifts and evolves over time, you are going to think that I’ll just build this business and this will be the product that I build, and this will be forever. That’s not going to happen ever. So you have to understand that as that landscape changes what your customer wants and the way the customer wants that thing, that you are delivering will change.
So if you build some value and that value is 1x with you, but that value can become 10x in the hands of someone else or a 100x in the hands of someone else. Then maybe you should get to that person sooner and take part of that 100x value rather than the 1x value.
And I’ll give you an example, without quoting names, in the case of both, two of the large SaaS exits that happened in the last two years. Both the founders have told me that what they used to sell for, and again, I’m not going to take the exact numbers, but the ratio is correct, what they used to sell for $10 to an enterprise after the acquisition, the same product is being bought for $1,000. So they used to spend three months on an acquisition, on getting a customer and that customer would pay them $10 a year. That same kind of a customer is now paying hundred times as much per year with just a one month sales cycle or a 15 day sales cycle.
So, sorry to interrupt. Is that mispricing? Is that inability to sell, what is that? Because this was, again, going back to my question, I asked earlier about the pricing of the product and doing it right, and being more aggressive about it. I am pretty sure this founder would have a heart attack if somebody told them to price it at a thousand, but perhaps they could have sold it for a hundred. Or overtime got to hundred, not quite a thousand.
So in many cases, these founders actually got from 0.1 to $10. In both cases, they got from selling it at 10 cents, literally I’m not even joking, literally they were selling at 10 cents and by the end of it, when they were acquired, they were selling it for $10. And today it is hundred times that price. And the reason that’s happening is not mispricing it is because in that company that has acquired them, they have a package. And that package together actually sells for 10,000. And this is one part, which is thousand within that. So that is something that we cannot do as a firm. We will not be able to create that larger packet. And these are literally orgs, which are $10 billion, a hundred billion dollars in market cap, and like literally billions of dollars in sales and stuff. So each of their deals is million dollars, $10 million, $30 million. And therefore your part of that could be like half a million dollars, million dollars, $5 million.
Absolutely. How do you cultivate those 1000x and 10,000x players consciously?
So that has to be from the beginning. You have to understand the landscape you’re operating in. You have to know who your customers are buying from, who are much, much larger than you. Who can you be revolutionary for? Who can you deliver some magic. But the interesting thing is that magic, today, that little piece of magic might be leading to that 30 million in sales.
So can you become that magic which helps them get larger and larger deals on the back of your little bit of magic? Can you see who in your ecosystem, and my co-founder Rajan has a very good phrase, he says, today’s tech leaders buy tomorrow’s tech companies. Yesterday’s tech incumbents by today’s tech startups.
So you have to understand the landscape and know who’s playing on the front foot, in that landscape. Therefore, they will be looking at buying something that has potential in the future versus versus was a hero in the past. And they need to catch up so they want to buy something that works today. They can’t necessarily leapfrog. So one,you have to start understanding nuances like this. You have to talk to your competitors, you have to talk to the largest players in your space. You have to always be meeting folks who are leaders in this space.
They may be competitors or they may be potential partners.They may be looking into this market as an adjacent market. They may be looking to go up from where a AT&T was selling calls to where Twilio is selling APIs. But if you, as a founder are not aware of how this landscape is, today was yesterday and it’s shifting tomorrow. Then you won’t be able to get the best out of these deals. So you have to know all the players, they have to know you and understand this deeply.
Wonderful Prasanna, really, really insightful stuff. One final parting question, I know you read a lot, any recommendations, you’ve recommended several good books to me. So any recommendations on books or blogs or anything that you would recommend founders read?
Yeah, so very offbeat recommendation this time I’ve been reading this book by Lao Tzu Tao Te Ching’. This one is by Ursula K. Le Guin, I have no idea how to pronounce that. So this is the book, so most of these translations are actually written by many academic kind of folks.
Ursula Le Guin is actually a science fiction writer and she’s a woman so her perspective on many of these things is very, very different from the past translations. It’s much more readable because she was not trying to be, precisely pedantic about the words that she’s using.
So she’s trying to be a little more poetic. She’s trying to get a little bit more at the underlying meaning of the words. So a really good read. Of course, not that I understand everything or you’re expected to understand anything.
Well, wonderful. Thanks a lot Prasanna for being on the prime venture partners podcast.
Thanks Amit for having me over .
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