Streamline operational efficiency

I have mentioned it before: I don’t think AI will replace people, but people who don’t use AI will be replaced by those who do. It’s about being 10x more efficient utilizing technology. Sometimes 80% of what we actually need is automation tools and 20% can be actual AI. For example, when looking at customer support, well-trained chatbots can manage basic customer requests allowing the existing staff to handle 10x more tickets.

Adopting flexible work models is not just a trend; it’s a practical move. Encouraging some remote work can significantly cut down on office space costs. I do also believe in the personal connection that cannot be replaced with Slack or Zoom, however, a good mix can reduce costs without damaging quality of service. Keep in mind that most employees value such a working environment.

Optimize marketing and sales expenditures

Smart spending in marketing can yield big savings and better results.

Start with leveraging digital marketing channels such as SEO, content marketing and social media. These channels offer cost-effective ways to reach your audience. Tools like Google Analytics can track performance, helping you refine your strategies for maximum impact.

A/B testing is crucial for optimizing marketing efforts. Test different headlines, images and calls-to-action to find what resonates most with your audience, ensuring you get the best return on your investment. Additionally, customer segmentation helps tailor marketing strategies to those more likely to convert and spend more. Platforms like Salesforce 1 or HubSpot can streamline the process by targeting high-value segments effectively.

Consider account-based marketing for high-value prospects. This personalized approach can enhance engagement and conversion rates. Tools like Marketo can help execute these strategies efficiently. And always use data to allocate your budget where it will have the most impact, like email marketing and retargeting ads.

Enhance R&D and product development efficiency

Besides the basic agile development practices, try focusing on the core features requested by actual customers. It is crucial to validate market demand.

This approach saves resources and ensures you’re developing products that meet real customer needs. Engage directly with customers to gather insights and prioritize development efforts that deliver the most value. Learn to say no to customers who request custom features that are not in demand by a larger audience. Saying yes to any request to avoid customer churn will drain your resources with no justifiable return and will confuse your team about the product roadmap.

By implementing these strategies, tech companies can effectively reduce costs while maintaining high-quality standards, paving the way for sustainable growth and profitability. It’s all about working smarter and focusing on what truly drives value.

Itay Sagie is a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

I will not dive into how to calculate them as it is widely available information, the benchmarks are also available and periodically change. Instead I will focus on when they should be used and under what conditions one may be more important than the other.

Each provides unique insights into a company’s revenue health and helps shape strategic decisions. Knowing when to focus on GRR vs. NRR can profoundly influence your business strategy and performance.

When to focus on GRR

Core customer retention: GRR is vital for assessing the retention of your core customer base, excluding the effects of upsells or cross-sells. This metric is particularly crucial for companies in early stages or transitioning to a subscription model, as it measures the loyalty and satisfaction of existing customers, providing a clear picture of baseline retention rates.

Service stability assessment: For essential or subscription-based services, such as utilities or basic memberships, GRR is indispensable. It measures how many customers maintain their core services, ensuring the stability of the primary revenue stream and aiding in churn prevention.

Incentivizing customer loyalty: By prioritizing GRR, companies can align their sales and customer success teams with the goal of retaining customers, fostering long-term relationships, and reducing churn. This focus helps build a loyal customer base that serves as a stable foundation for long-term growth.

When to focus on NRR

Revenue growth maximization: NRR is crucial when aiming for overall revenue growth from the existing customer base. It includes expansion revenue from upsells, cross-sells and renewals, providing a comprehensive view of revenue health, especially important for mature companies seeking to maximize growth opportunities.

Promoting upsells and cross-sells: Companies looking to boost revenue from current customers should prioritize NRR, as it encourages sales teams to explore expansion opportunities. This focus can drive revenue growth through enhanced customer value and increased average customer spend.

Balancing acquisition and retention: While new customer acquisition is essential, NRR highlights the importance of maximizing revenue from existing customers. Tracking NRR ensures a balanced approach between gaining new customers and expanding relationships with current ones, optimizing overall revenue performance.

Incorporating both GRR and NRR into your business strategy as well as to your  sales and support KPIs should provide a holistic view of revenue dynamics, ensuring a balanced approach to growth and customer retention.

 Itay Sagie is a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

As companies expand, they often face increased risks due to over-dependence on limited customers, geographic markets, supply chains and more.

Strategic diversification is not just a prudent choice; it’s a vital maneuver to safeguard your business from unpredictable setbacks.

With that in mind, here’s how to strategically mitigate risks associated with key areas of diversification.

Customer concentration

Over-reliance on a handful of customers can spell disaster if one decides to part ways. Diversifying your customer base helps stabilize revenue streams and reduce the volatility of your business performance.

Implementing a robust customer acquisition strategy that leads to customer diversification — where there is no small group of customers contributing to the majority of sales, and where your customer base is a healthy mix of market segments or industries — can cushion the company against the loss of a major client and market volatility.

I have seen companies lose significant M&A value due to customer churn as that one customer accounted for 50% of their revenue.

Expanding geographic reach

Concentrating on a single country or region increases vulnerability to local economic downturns, political unrest or regulatory changes. Companies should look to international markets for expansion — not just to increase their customer base but also to mitigate risks tied to any one locale.

This geographic diversification can be achieved through online platforms, setting up remote sales offices, or partnerships with international distributors.

Securing multiple supply chains

Sole reliance on one supplier for raw materials or key components can lead to significant operational disruptions if that supplier faces issues like price hikes, production halts or goes out of business.

To avoid this, companies should develop relationships with multiple suppliers across different regions. This approach not only helps in negotiating better terms but also ensures continuity of supply.

I have seen companies lose three or four quarters of revenue due to such issues. This can destroy a company. By the time you sort things out, even your loyal customer base may be long gone.

Considering ‘what if’

There are many diversification strategies to think about, including product or service diversification.

Every entrepreneur should take a step back and play a game of “what if.”

What if your biggest customer churns? What if your key supplier vanishes? What if there is a natural disaster or political unrest in your key geography? What if your key technology is now offered as a free feature by a major player?

If you work to mitigate these risks, you will cushion yourself from volatility and lay the foundation for sustained growth.

Itay Sagie, a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

This preference underscores an inclination toward the scalability and predictability that products can offer.

But, at least based on my firsthand observations over the years, this conventional wisdom might need a reassessment. I can’t say I took a quantitative approach, but my observation from hundreds of meetings over the past few years is that companies that integrate services with their products seem to forge deeper connections with their customers, leading to lower churn rates and enhanced customer value.

Both products and services have value, but it’s my belief that the optimal value often lies in the synergy of both.

Enhanced customer understanding and engagement

The integration of services with products brings an invaluable human element to the business-customer relationship.

Services enable businesses to better understand and anticipate customer needs, leading to tailored solutions that resonate more deeply with users.

This bespoke approach fosters a stronger connection and loyalty, which is difficult to achieve with off-the-shelf products alone. Consequently, companies that offer a combination of products and services often see lower churn rates, as their customers feel more understood and valued.

Increased upsell opportunities

The melding of products and services opens up additional avenues for upselling. With services, businesses have more touchpoints with customers, allowing them to identify and act upon opportunities for offering enhanced or additional solutions.

This not only boosts revenue but also enhances customer satisfaction, as clients benefit from a range of solutions that more closely meet their evolving needs.

The ability to seamlessly integrate new offerings into an existing framework makes it easier for customers to adopt additional products or services, reinforcing the business relationship.

Overcoming scalability and cost concerns

A well-executed blend of products and services challenges the traditional assumption that services are inherently nonscalable and costly.

By leveraging products within their service offerings, companies can achieve greater scalability and improve profit margins. This strategic integration allows services to benefit from the replicable and scalable nature of products, while products gain additional value through customization and enhanced service delivery. This symbiosis effectively addresses the scalability challenges associated with services, proving that the right mix can lead to a scalable, profitable business model.

It might, therefore, be prudent for investors and business leaders to reconsider how they value services in conjunction with products. This blended approach not only reflects a more holistic understanding of customer needs, but also positions companies to capitalize on the full spectrum of business opportunities.

As we move forward, the integration of services with products may very well become a key differentiator in the market, redefining what it means to deliver value to customers.

Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

Designed as a founder-friendly vessel to sail the choppy waters of early-stage funding, a SAFE agreement promises a straightforward path to securing capital without the immediate dilution of ownership or valuation discussions, allowing founders to focus on what they do best: building a company.

But here’s where the plot thickens: The seductive simplicity of SAFE agreements can sometimes lead to complications.

Picture this: You, the visionary founder, have built your startup over the past three years, growing from nothing to a successful business, clutching a handful of SAFE agreements along the way.

Then comes the moment of truth: an M&A opportunity or the much-anticipated priced financing round.

It’s time to cash in on your progress, to see the fruits of your labor reflected in your company’s valuation. But a stark realization dawns: Those SAFE investors, your early backers, haven’t been diluted through the journey. Instead, their share of the pie is determined by the cap you set in those initial agreements, a figure that now seems a distant echo of your company’s current worth.

The very cap that once offered protection to your early supporters now casts a long shadow over your company’s valuation, diluting your share more than you ever anticipated.

As tempting as it may be to view SAFE agreements as the golden key to easy funding, the savvy entrepreneur sees them for what they truly are: tools that require careful, strategic handling. The goal is not to avoid them but to engage with them wisely, considering the long game.

Imagine treating each SAFE agreement like a hot potato that needs to be converted as soon as possible. By adopting this mindset, you can avoid colossal dilutions that can even destroy future rounds and acquisition opportunities.

Itay Sagie is a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.

Unlike employees who share camaraderie and casual coffee breaks with peers, a CEO’s position is unique. Despite any genuine attempts at friendliness, the inherent power dynamics — where the CEO has the ability to make significant changes, including firing — means they are seldom viewed as a peer. This distance is not just limited to the broader employee base but often extends to the top executives as well. Even within the C-suite, where conversations tend to delve into more critical aspects of the business, there exists a barrier when it comes to discussing highly sensitive issues. Topics such as the timing for a company sale, changes in management structure, or strategies for board presentations remain challenging to navigate openly.

When considering the board — including VC members and other stakeholders — the dynamic shifts further. Given their power to potentially end a CEO’s tenure, conversations are typically approached with caution, focusing on presenting strategies rather than seeking genuine advice or engaging in open discussions. For example, a legitimate discussion on raising capital or an exit may cause alarm for some board members, thus the topic will either be avoided or surfaced after a strategy has been chosen, rather than early on.

Below are three actionable strategies that can help mitigate feelings of solitude and foster a more connected, supported leadership experience.

Network with other CEOs

The importance of building a network with fellow CEOs and industry peers cannot be overstated. Engaging in forums, joining entrepreneur clubs or attending industry-specific events can provide a sense of comradery and shared purpose. You will find you are not alone in your struggles. These connections offer valuable perspectives, advice and who-knows-what, also good business as you build these relationships. Consider setting up regular meet-ups or virtual catch-ups to maintain these connections.

Write a blog/vlog

While highly sensitive topics may be off the table, sharing your journey, challenges and insights through a blog or vlog can be a therapeutic outlet and a powerful tool for connecting with others who may be experiencing similar challenges. This platform allows you to articulate the highs and lows of leadership, offering transparency that can resonate with other entrepreneurs, potential clients or even future team members. Furthermore, it allows an expression of who you are as a person, not just as a business title. In today’s world this is rare and highly valuable.

Work with a strategic adviser

Partnering with a strategic adviser can provide you with invaluable insights, support and guidance. A strategic adviser acts as a sounding board for your ideas, challenges you to think differently, and supports you in navigating the complex decisions that come with leading a startup. This relationship not only helps alleviate solitude by ensuring you have a trusted partner in your corner, but also drives meaningful progress in your business.

Itay Sagie is a strategic adviser to tech companies and investors — specializing in strategy, growth and M&A — a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

So, you’ve successfully navigated your startup to a pivotal moment. You’ve secured some $10 million in funding, identified a product-market fit, and achieved an impressive $3 million in annual revenue with consistent year-over-year growth.

The clock is ticking: Projections point to profitability in 12 months, but your runway is drying up in nine. The pressure is on!

This scenario isn’t just hypothetical. Many of you might find it mirrors your own journey closely.

So, what are your options?

Option 1: Raise capital — difficult

Imagine your most recent raise, a Series A round, was $5 million, boosting your post-money valuation to $20 million.

With the market being what it is, a down round is off the table for your investors.

Your goal? To secure an additional $8 million, aiming for a $25 million pre-money valuation, which would mean you will reach a $33 million post-money valuation, letting go of another 24% stake of your company.

This is no small feat in a market where achieving an 11x revenue multiplier (your $33 million valuation against $3 million in revenue) is akin to reaching for the stars.

Yet, let’s say you’ve done it. Your new VC partners are eyeing a tenfold return on their investment, dreaming of transforming their $8 million into $80 million. This requires your exit valuation to breach the $300 million mark, demanding a sales figure of $60 million to align with the current 5x revenue multipliers.

That’s a Herculean task, undoubtedly, that could inadvertently handcuff you to unrealistic M&A expectations, potentially sidelining more attainable opportunities.

The upside about this option is that you are postponing the final valuation for exit in a few years, and by then perhaps revenue multipliers will soar once more.

Option 2: Sell — not a bad option

Opting to sell at a 5x multiplier could net you $15 million today.

However, considering your last funding round pegged the company’s worth at $20 million, a sale could activate a series of anti-dilution mechanisms, from full ratchets to liquidation preferences.

Despite these hurdles, this route saves you time, and may end up being favorable for the founder, versus raising additional funds through mechanisms like earn-outs and bonuses.

I would not disregard the time element. You get to save a few years of your life and, as an entrepreneur with exit history, you can start a new venture after your mandatory stay with the buyer.

Option 3: Sell a majority stake — let’s discuss

Here lies the uncharted path for many: Working with a private equity fund to acquire a majority stake.

This nuanced approach blends elements of selling while still holding onto a piece of the pie. Post-sale, you might retain 20% ownership, reaping the benefits of a capital boost aimed at turbocharging growth, with a potential “second bite at the apple” on the horizon when the PE fund flips the company.

While a PE fund’s valuation might be lower than that of a strategic, this strategy shifts the financial burden from your shoulders to usher in a new era of accelerated expansion, leaving you with a lucrative stake in a now well-oiled growth machine.

You also get to have a second bite from the apple at a different time when the company is bigger and multipliers may be higher.

There is no one clear path, and nobody knows what the future holds. Each company is its own unique universe of circumstances, agendas and personal and business goals. The decision rests in your hands, and whatever you do, make sure to enjoy the ride.

Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

You may find yourself doing this before writing an investor deck: Saying to yourself “here we go again” as you dig your old competitive analysis chart out of the archives, throw some new logos in there, put your new logo on the top right corner of your made-up axis, and move on.

It’s time to break away from this flawed approach, which does you no favors as an entrepreneur, and embrace the power of quantitative benchmarking to gain a true competitive advantage.

Why move from qualitative and focus on quantitative benchmarking? Let’s delve into three critical pain points that you, as an entrepreneur, might face when conducting competitive analysis and benchmarking.

1. Overcoming bias

One of the primary pain points in competitive analysis is the inherent bias that arises when entrepreneurs use qualitative diagrams.

This method often allows them to manipulate axis titles and criteria, making it easy to position their offering as superior. For instance, placing a potato in the top right corner compared to an AI-enabled drone becomes misleading when the axis titles are carefully chosen. You could add “biodegradability” as an axis and the drone would rank as a failure compared with the potato. Or “affordability” and again the potato would come on top. To tackle this bias, embrace quantitative benchmarking. This approach forces you to measure tangible factors — such as speed, accuracy, capacity and more — eliminating room for manipulation and creating a level playing field worthy of discussion and attention.

2. Real-world relevance

Entrepreneurs frequently make the mistake of assuming their product or service is the best without empirical evidence. The real world is unforgiving, and future customers will undoubtedly subject your offering to rigorous testing.

To ensure you are up to the challenge, quantitative benchmarking is essential. By conducting experiments and measuring your performance against competitors, you not only understand your strengths and weaknesses but also how you stack up in the eyes of potential customers. This approach aligns your strategy with reality and equips you to make the necessary improvements to outshine your competitors.

3. Investor and acquirer appeal

Venture capitalists and potential acquirers are keen to invest in and acquire businesses that have a clear understanding of their competitive landscape.

Qualitative diagrams with logos in strategic positions are unlikely to impress discerning investors.

On the contrary, quantitative benchmarking tells a compelling story. It showcases that you’ve put your product or service through rigorous testing, revealing your commitment to excellence. It resonates better with VCs and future acquirers, increasing your chances of securing investment or acquisition offers.

Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Li-Anne Dias

Strategic partnerships are formidable tools in an entrepreneur’s arsenal, capable of accelerating growth, adding credibility to your offerings, and opening doors to new horizons. However, when mishandled, they can spell the slow decline of your business.

Types of strategic partnerships

As a start, let’s explore the fundamental types of strategic partnerships and their inherent pitfalls:

Product partner: Product partnerships involve a collaboration in which two companies merge their technologies or resources to create an advanced product beneficial to both parties. This type of partnership can yield innovative solutions that neither could achieve independently. A potential pitfall here is intertwining your intellectual property with your partner’s, making it challenging to disentangle in case of an acquisition.

Channel partner or marketing partner: These allies help you expand your market reach by distributing your products or services through their established sales and marketing channels, typically receiving a commission per successful sale. Be cautious of exclusive partnerships, as excessive dependency can stifle your growth, posing risks to future investors and acquirers.

Strategic partner: My favorite kind of partner, strategic partners offer substantial synergy and the potential to reshape your company’s commercial trajectory. Such partnerships can potentially lead to acquisition. In some instances, a large product partner can evolve into a strategic partner over time. However, be mindful that overly publicized partnerships might deter other large strategic partners who don’t wish to bolster their competition.

Common partnership pitfalls

While each strategic partnership type carries its own unique benefits and pitfalls, let’s expand to additional overarching pitfalls to keep in mind:

Overcommitting resources: Entrepreneurs often make the mistake of investing excessive time, money and effort in their strategic partnerships.

While commitment is crucial, it’s equally important to maintain a balance and not put all your resources into a single partnership. Overinvesting can lead to financial strain and divert management attention from other critical aspects of your business.

To avoid this pitfall, establish clear boundaries and allocate resources wisely. Remember, a sustainable partnership should enhance your capabilities, not drain your resources.

Unpaid engagements: It’s common for potential partners to express interest in trying your product or service. While it’s an exciting opportunity, proceed with caution regarding unpaid pilots or engagements. Instead, insist that they pay for your product or service.

This approach contributes to your cash flow and validates the value of your offering. A paid trial and customer demonstrates the commercial viability of your product. It sends a strong signal that your solution is valuable and worthy of investment. So, before embarking on a trial with a potential partner, discuss the financial aspects to ensure it’s a mutually beneficial arrangement.

Legal hazards: Seek expert legal counsel to include rollback clauses in your partnership agreements, allowing for reversals or terminations of the arrangement. This is crucial for potential mergers and acquisitions.

Avoid exclusivity, limit financial exposure through indemnifications, and ensure the partnership does not constrain your growth potential or expose you to unnecessary risks. These legal safeguards can prevent potential roadblocks in your path to growth and acquisition.

Further reading:

• How To Spot Red Flags In Your Startup’s Business With Quantitative Tech Evaluation 
• Bootstrap, Sell Or Recapitalize? A Tech Entrepreneurs’ Guide To Surviving A Capital Crunch In A Downturn
• 3 Reasons Now May Be The Perfect Time To Launch A Startup

Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Dom Guzman

Running a tech company or investing in one can be a thrilling journey filled with potential rewards, but it’s equally fraught with risks.

While some people might rely mainly on their intuition, there is immense value in assessing the financial well-being of a tech company, a practice that proves beneficial for entrepreneurs and investors alike.

Using quantitative metrics offers a data-driven and objective approach to evaluation, but it requires a keen eye to uncover hidden strategic insights.

First, ask: What is the purpose of the evaluation?

For entrepreneurs who are sometimes too close to the subject matter, the evaluation helps them take a step back and make smart, objective decisions about their growth strategy and their company’s financial health. It can also help them identify risks.

For investors, this evaluation can help assess potential opportunities and gauge the health of their existing portfolio. Active investors may need such evaluation and analysis to be reported on a regular basis, and some may choose to step in and offer assistance where possible.

In this exploration, I aim to delve deeper than the fundamental key performance indicators, or KPIs, like various margin rates, burn rate, runway and the basic unit economics KPIs such as the LTV/CAC ratio, Rule of 40 and growth/churn ratios, which I discussed in a previous unit economics article.

Instead, I will try to uncover hidden strategic insights using quantitative benchmarks.

Balance growth with your CAC payback period

While the prospect of rapid revenue expansion is alluring, it is essential to conduct a thorough examination of your company’s customer acquisition cost, or CAC. An excessively high CAC can eat into profitability significantly.

It’s not uncommon to see tech companies devote months of their sales team’s efforts to chase after customers yielding only $100 in annual recurring revenue, or ARR. The cumulative expenses, encompassing budgets and salaries, incurred in acquiring such customers can amount to tens of thousands of dollars. Clearly, this approach is unsustainable.

One pivotal benchmark to keep in mind is that the CAC payback period should ideally fall within the range of 10-12 months. So, if your average customer acquisition cost is $12,000, the corresponding ARR should ideally range from $12,000 to $14,400.

Strategic insight: When the ARR and CAC fail to align, it’s prudent to reconsider the business model or the company’s go-to-market strategies.

Take your time, avoid short-term metrics

It’s crucial to avoid placing excessive reliance on short-term metrics, such as monthly revenue or even short-term CAC, as they can obscure a startup’s long-term sustainability.

A sudden revenue spike from a single project can distort the overall financial picture, and extended sales cycles may conceal the effects of specific sales efforts that have been maturing over extended periods. Depending on a company’s business model, the customer lifetime value, or LTV, often remains concealed until annual churn data becomes available. That’s why it’s advisable to embrace a more comprehensive, long-term perspective.

Strategic insight: To gain a genuine understanding of the company’s overall financial health, be sure to focus on longer-term KPIs.

Beware customer concentration risk

Elevated customer concentration presents a notable risk scenario, wherein a significant proportion — say, 80% — of the total revenue is derived from a limited pool of customers, while the remaining 20% originates from a diverse customer base.

The inherent danger lies in the potential loss of a key customer responsible for a sizable portion of the company’s income, which could lead to a substantial devaluation and even transform a profitable company into a loss-making one.

This point is not meant to discourage entrepreneurs from pursuing large customers — rather, it underscores the critical importance of crafting a contingency financial strategy to ensure the company’s resilience in case such a pivotal customer terminates their business relationship.

Strategic insight: Stay mindful of your customer concentration, recognize its risk profile in the eyes of potential investors, and proactively address it with contingency plans to maintain financial stability in the event of a significant customer departure.

Retention is high, but is it the right one?

In contrast to customer retention, which gauges the ratio of retained customers versus churned ones, net revenue retention, or NRR, provides insight into dollar retention. When you lose a customer who contributes $1,000 annually, it’s less impactful than losing one who brings in $10,000 in revenue. That’s why you should focus on NRR.

NRR underscores the company’s ability to monetize its customer base, highlighting the significance of upselling and cross-selling (expanding customer value).

Ideally, a tech company should aim for an NRR exceeding 120%. Calculating NRR involves constructing a cohort analysis of revenue per customer over time, a task that may not be straightforward but is crucial.

NRR’s close relative is gross revenue retention, or GRR, which does not account for customer expansion. A strong GRR for enterprise sales typically hovers around 90%.

Strategic insight: Not all customers are created equal, and this relates to the previous point on customer concentration. It’s important to understand the importance of retaining dollar value of customers, and beyond that, increase the dollar value of your existing customers over time. This is called a farming strategy.

Even more important than attracting new customers is a hunting strategy. Unless you know how to retain and monetize your existing customers (land-and-expand strategy), allocating more resources to attract new customers may not be the most prudent use of capital.

By comprehensively evaluating these quantitative metrics and being aware of potential red flags, entrepreneurs can maintain a keen understanding of their business’ dynamics, while investors can acquire a holistic perspective on the health of a tech startup.

Nonetheless, it’s essential to bear in mind that no single metric offers a complete narrative. Qualitative elements such as the team’s morale and competence, market alignment and the competitive environment should complement the quantitative analysis.

 Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.