This article is from the public number: GGV Jiyuan Capital (ID: GGVCapital) , the original Title” Business Service Entrepreneurs Must Read: Impact Valuation and development of nuclear DivisionThe importance to corporate service companies is equivalent to DAU to social media, and GMV to e-commerce.
The income of a single customer can clearly show: whether the customer’s problem is important, whether the product can really solve this problem, and whether the effect can be clearly quantified.
When we look at the company, we will focus on one question: Why do customers pay the same amount to product A and product B to the same customer base?
There are many calibers of income, but entrepreneurs should clearly know that cash income> finance income> contract income.
SaaS companies in the United States are so sought after, mostly because they have received cash for a year in advance.
The income of listed companies in the chart just mentioned refers to financial income, (that is, the income recorded in the financial statements of enterprises through accounting standards) In our usual judgment of the company, we also attach great importance to financial income rather than contract revenue, and we also attach great importance to the arrival time of cash income. The contract revenue we see is sometimes appraised to future financial income in accordance with accounting standards, but the contract revenue is not received in cash. In this case, our consideration of this revenue will be discounted. .
Conceptual explanation: Suppose a SaaS company signed a two-year contract in January 2019, a total of 2.4 million, 100,000 monthly, beginning of each year payment. The data will reflect that in January 2019, the company’s contract revenue was 2.4 million, cash income was 1.2 million (of which 1.1 million was prepaid), and financial income was 100,000.
In the traditional software service market in China, there will be a certain gap between the contract and the business that is actually realized. Often, it may happen that a sales contract is signed and the subsequent execution cannot keep up with the customer Without acceptance, this cannot be recorded as financial income. Or, after the software delivery is completed, you can get cash back in half a year or even a year in arrears, and you may not even get it.
So companies in the industry are still selected to serve early-stage entrepreneurs. Try to find customer industries or product functions that can receive cash first, and avoid falling into “empty and superficial performance, working hard but not receiving money.” “Trap.
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Denominator = All customers who paid 12 months ago were (that is, 12 months ago) ARR
Taking a closer look, we can divide the paying customers 12 months ago into retained customers and lost customers.
Numerator = ARR for renewal of customer’s original module + ARR for renewal of customer’s existing module + ARR for renewal of customer’s new module
Among them, the renewal of the customer ’s original module ARR = denominator-the ARR of the lost customer-the reduction of the customer’s original module
For investors, the core of a company’s valuation is the predictability of revenue.
From the results, each of the above variables will affect income in the new year. However, the proportion of lost customers and retained users, and the renewal revenue of retained modules of retained customers are relatively stable, and there will be no major fluctuations. Related to customers ’existing scenarios) .
But the additional purchases of the original modules are full of uncertainty, especially when it comes to cross-departmental purchases. The addition of new modules is even more uncertain.
So, the basis of maintaining a good income retention Net Dollar Retention is to maintain a high proportion of retained customers, plus a high renewal fee of the original module.
For entrepreneurs, maintaining a high percentage of retained customers is a top priority for strategy and products.
The customer churn is no more than three reasons: the client company closed down, the customer switched to another product, and the customer abandoned the use of this type of product.
If the customer failure rate is high, then entrepreneurs should strategically consider whether they choose the wrong customer industry and customer size; if customers switch to competing products, entrepreneurs should continue to step up iterative products; if customers simply give up using this type of Products, entrepreneurs should think about their own gamesterlace / 1 / q / 85 “data-w =” 779 “data-h =” 627 “>
Of course, with the fastest-growing Slack, the company’s products have been on the market for 4 years and have reached an annual income of 400 million US dollars.
In China’s To C market, there are many startups that are not inferior to growth, or even far exceed the benchmark US companies, even if there is a difference in RMB exchange rate. From the already listed Pinduoduo, Meituan, to the yet-to-be-listed byte bounce, the fast hand, all are international super-class growth rates.
But in China’s To B market, there is still a significant bottleneck in revenue growth. Only a few companies can reach RMB 100 million in revenue in 5 years.
We have also calculated that, As an earlier company, it usually takes 1-2 years from establishment to stable product revenue; and the annualized income ARR rose from 1 million to 50 million yuan. It takes about two years.
The growth rate is the result you see, but what is the reason behind it? It is the income retention and income quality mentioned above.
With a high retention product, the same growth rate will require much less effort. High-quality revenue is generated by software and non-human services, so the company does not need to linearly increase the scale of services in the process of increasing revenue. A large number of service personnel will make management more difficult.
WPS, Boss direct hire, Kujiale, Moka and other companies invested by GGV have also shown rapid growth in actual performance.
Of course, in the Chinese market, we have also seen some enterprise service companies with traditional business models and a large proportion of human services. However, under the leadership of a very capable founder, they have made first-class brand building, talent recruitment and sales. The ability has also made admirable income growth and income scale, and has also gained the favor of capital in the primary market.
What kind of market performance will these startups have when going to the secondary market, especially for the US stock market with the above indicators as the core inspection system? Will we face valuation adjustments similar to WeWork, or will we be able to convince secondary market investors to use SaaS standards for pricing? We also look forward to seeing their performance.
Another important point affecting revenue growth is sales efficiency. The measurement algorithm used by American investors is Magic Number,For the confirmed financial revenue target of US $ 200 million in 2019, Company A needs 300 million new contracts, twice as many people as the previous implementation delivery team, and more cash advances. (Because the payment will take a long time) ; Company B can directly get 120 million customers from last year, and the sales team only needs to get 80 million new income, and cash income can be taken in advance Here.
As two equally good companies, comparing their indicators, the valuation multiples should be very different.
We would like to add in particular that these mentioned indicators are only some of the quantifiable criteria for GGV in the face of investment by corporate service companies.
The market environment for Chinese enterprise services is very different from that in Europe, America, and Southeast Asia. It is difficult to copy the listed foreign SaaS companies based on products. The development path of Chinese companies will have its own characteristics. Entrepreneurs must provide corresponding products and service models according to the real needs of customers in various industries in China.
Although the “first year of corporate service” has been around for a long time, most of the Chinese corporate service companies we have seen still need to grow patiently. Of course, we also really saw and invested in very few fast-growing enterprise service companies. They are scattered in different industries and fields, and they also meet these criteria for judging quantitative data.
I want to share this article with you. First, I hope that Chinese entrepreneurs can learn more about the evaluation indicators of corporate services companies in the capital market. Second, I hope that you can see some strategic choices from behind these indicators. Your company has more predictable revenue, higher quality revenue, and faster growth.
Behind the data indicators are the choices and efforts of entrepreneurs. Data is important, but the values, persistence, and courage that entrepreneurs show in the entrepreneurial process, and the sense of smell, thinking, and execution in the company’s strategy and operations, these inquantifiable parts are our investment More valued.
Entrepreneurship is difficult, especially To B. In it, please choose the better way.