ARR ≠ Revenue ≠ Cash

AuthorAuthor

Jay Nathan & Jeff Breunsbach
February 21, 2024

The Middle from GrowthCurve.io

Three ideas to level up your week.

Hey Reader,

Welcome to The Middle, your midweek rundown of the most interesting things we've read so far this week.

We're here to help SaaS VPs, directors, and managers level up to become better business leaders.

It's Wednesday, so let's jump into The Middle...

THE MARKET

How to describe your business as an equation

Dan has been in and around software teams for a long time now, and he teamed up with Lenny (from Lenny's Newsletter) to showcase software business models.

This crash course allows you to better pinpoint your model and the sandbox you play in.

Figuring out this equation forces you to think about the inputs that drive your business, the outputs you want to prioritize, and how these variables interact.

Here's what they cover:

  1. B2B SaaS

  1. Bottom-up B2B SaaS with seat-based pricing

  1. Bottom-up B2B SaaS with usage-based pricing

  1. Top-down B2B SaaS

  1. B2C/consumer

  1. B2C subscription (trial or freemium)

  1. B2C free (ads)

  1. Marketplaces

  1. B2C marketplaces

  1. B2B marketplaces

  1. DTC/e-commerce

BUSINESS OPERATIONS

ARR ≠ Revenue ≠ Cash

Today, I was reminded of a post from Jay that educated us on the nuances of a SaaS business.

Many people working at a software company hear things like "$40 million in ARR" or "$80 million In revenue" during a town hall and automatically think "Healthy, stable business".

It's tough for you and your teams to make decisions when you're missing a complete picture of the financial health of the business.

Sure, some might say not everyone needs to know those details... but I'd rather know than not...

7 principles that you and your teams should brush up on.

1/ ARR is not revenue.

2/ Revenue is not cash.

3/ Bookings are not revenue or cash.

4/ There’s no escaping Gross Retention.

5/ Renewal rate and retention rate are different things.

6/ Cash is king

7/ Customer Acquisition (CAC) is expensive.

LEADERSHIP

Consistent is better than better

Dave Kellogg is a must-read for me, and his most recent post didn't disappoint. ​

His point: 10 people from a company all saying different things is an ineffective way to communicate. Hence, consistency is better than better.

Don't always look to be evolving the messaging or narrative at the moment -- there is a point at which consistency matters. Both internally (teammates) and externally (market).

My former CEO used to lead every town hall with the same slides -- at one point I thought "This is crazy, we've heard it before" -- but he did it with purpose and intention.

The easiest way to get people to repeat something is to repeat it to them in the first place.

AI CORNER

We're in on the AI hype.

Here's one way to use AI within your day-to-day work.​

This week: Competitive Analysis

Competitive analysis should be a quick, simple exercise to see how you stack up.

I've used a prompt similar to this with Bard (or Gemini)...

"Here’s the link to my competitor’s homepage/landing page < link>. Based on this, share a detailed buyer persona for their business."

Thanks for reading the recent edition of The Middle, from GrowthCurve.io.

​Drop us a line, and let us know what you think.​

If you found it valuable, forward it to a friend or colleague. We'll owe you one.

🚀

Cheers!

Jay & Jeff