Chapter Chapter 1 1 investsinvests in a ciqnu airicnqgu iristrateging strategic cusctomer customers whos swhoe revese nurevee, nuande, profitand profits, s, won’two bnuild’t b uuildntil ulantertil layeterar s.ye Naoters. N thoteat ththeat grethea tergre atheter GtheEI, theGEI , lethess less efficientefficient the c theom pcanomyp isan ayt aisc tauat allyct uagrollyw groingw itings sa itless — sale js —ust the jus toppo the opposite site of whatof what you’d you ex’dpe cetx.pe A clot. wA GloEwI meGEansI me thansat thfora tthe for samthe esam numbe number of er of dollars,dollars, you’ll ge youn’ll geeratener moreate more sales sa, andles th, andat’ ths a agoodt’s a good thing thi. ng. In theIn stheubsc sriptioubscription incnome inc omestate mstaetentm abenovt abe, ovyoeu, hyoaveu haa vere cua rrinrecug rring profitprofit of $4 of0 m $4illio0 mn illioon na begion a nnbegiingnn ARRing ofARR $1 of00 $1 m00illio mn.illio Don yo. Duo t yoakeu thtae ke the $40 m$40illion m illionoff the off t atheble t aanbled b aooknd b itook as profitit as profits? A 40s? %A a40n%nua anl profitnual profit mar ma-r - gin isginn’t bisand’t. Thebadn. The aganin, a gyoaiun, w yooun ’wt seeon’ tas see muc as hmuc grohw groth asw thyo asu w yoouu lwd oif uld if you re-iyoun vestere-invested in yod inur nyoeuwr reve newnu revee gronuew th levers. growth levers. Instead, let’s be bullish and invest $30 million back in sales, marketing, Instead, let’s be bullish and invest $30 million back in sales, marketing, and cuandstomer customer succ essus—iccenss—i othern other words w, orgrowthds, growth. With. Witha GE Ia of G E1I. 0of, yo 1.u’0,l l you’ll book $30 million in net new annual contract value over the course of the book $30 million in net new annual contract value over the course of the next yeneaxrt ye, leaavir, nlega you vingw you ith w$12ith0 m $12illio0 mn illioin ARRn in . ARR. ACVACV AnnuAnnal counaltract con tractvalue v (aAluCeV) ( AisC reveV) isnu revee bnuroeu ghtbro uinght by i nne byw cusnewto cusmertosm, ers, or cuorstomer customers upgras udpgraing dorin reg nore wreinngew theiring theirexisti enxgis ctiontrng cacontrt. Itac correlt. It caorreltes ates to a bookingto a booking, in whi, inc hw ahi cuchs toa cumserto cmomerm comits tom itspes tond speingnd a isnpeg ac ifispec acmifiocun amt ount of moneyof money with w a coithm a pancomy.pany. The kTheey d kifferenceey difference is tha its ath baookit a bnookig inn ag subs in a criptiosubscription mond elm oisd goiel ins g going to addto to add that to repeatithat repeating revengnu revee snutreeam, stre wam,here washere onase-ti omne-tie bmookie bnookigs dno gs do not not. The beauty of subscription businesses is that they get the bulk of . The beauty of subscription businesses is that they get the bulk of their theirACV fro ACmV frotheirm theirexisting exis ctinglien tc baslienet basupgre adupgringad toing better to b etterservi cseervis. Bucet s. But you should also invest in sales and marketing to drive new ACV, because you should also invest in sales and marketing to drive new ACV, because in combination with upselling, this increases your ARR. in combination with upselling, this increases your ARR. Future GrowthFuture Growth If youIf r youun this run play this yeplayar overyear overyear, yeyouar’,re you gro’rew groingw biyn g20 b%y 20annua% annually as lly as long longas you as m youain mtaainin anta ieffin ancie effintc GEienI tr aGEtioI r(ifatio yo u(ifr yoGEuI ris G leEssI is th leanss th1.0an, yo 1.u 0, you growgro evenw even more). m ore).And wAnhedn w thehen time the timecome cos tom efisna tolly fi nastallyrt tsatakirtn tga profitsking profits, , you’re workiyou’re working offn g offof a muc of a much biggerh bigger recurri rencug reverring revenue snutree amstre. am. NoteNote that thithats isthi as basis aic bas overvieic overview of wthe of bus thei nbusessi nmeodelss m.odel There. There are are otherother factors factors at play at: playtota:l totaddalre adssabdrelessab malerk maet, one-tir m ket, one-tie samlees saandles c andosts costs impaimpcts, athects effects, the effects of ch ofur cn houn Grn EoI. I’n GmE sI. I’immplifyi simnplifyig forn cgl forarit cy.larity. 2222 2222