DEEP DIVE TIME: Openview benchmarks privately held SaaS businesses and has released the seventh consecutive edition of their 2023 SaaS Benchmarks Report. This report has a broad sample size and combines over 3,500 respondents. It can be downloaded here as a PDF. It's an ever-evolving story from 2021 and 2022 into 2023 of what good looks like; back of the napkin summary here, but below are the top takeaways, which we always take to 11:
1. GROWTH: In 2023, achieving growth has become more challenging, but there are still resilient areas amidst the overall negative trends. Some exceptional companies, or "outliers," have successfully achieved faster growth compared to the previous year BUT are concentrated among AI and vertical SaaS businesses.
2. ARR per FTE: The now-popular efficiency metric! For many companies, Annual Recurring Revenue (ARR) per Full-Time Employee (FTE) has emerged as a primary performance indicator in 2023, signifying team productivity and doing more with less. Significant yearly increases in ARR per FTE have occurred from 2022 to 2023 across all bands of startups surveyed.
3. EMPLOYEE DISTRIBUTION: What's the breakdown of all those FTEs in the above metric? Engineering was the largest department across the board - typically about 30% and the mix remains pretty consistent across ARR categories. Diversity and representation still disappoint.
4. CAC PAYBACK: Another metric to watch and corollary to #2 - as it's an indicator of the business's health. Unfortunately, it's rising as the market becomes tougher.
5. RULE OF 40: Back in 2021, OpenView observed that "investors have forgotten all about the Rule of 40." Last year's response: the Rule of 40 "back from the dead." This year, it's increasingly important but a very tough bar to achieve continually quarter on quarter.
6. PLG MATURITY - PIR: Efficient product-led growth (as well as expansion and lean ops) is key for productivity. Despite initial lower profitability, PLG investments now aim for growth and efficiency by replacing manual work with product solutions, using "product-influenced revenue" as a key metric. PLG is a no-brainer for those AI Outliers mentioned above.
7. EXPANSION: Net Dollar Retention is getting more challenging but never harder than new customer acquisition efforts. Top quartile companies have been hit hard, seeing NRR drop from 119% to 107%. But at scale, more growth is from Expansion vs New.
8. LEANOPS: 2023 was the year of LeanOps and more companies pushing for profitability. In the past hyper-growth mode mentality, companies were focused on meeting demand and, more often than not, ignoring operational efficiency. In 2024, LeanOps strategies should include minimizing back office costs, optimizing pricing and packaging, automating manual work and process optimization, and ensuring smarter growth with less resource expenditure. Hey - isn't that language what most of us in the B2B world use to sell to our customers? Time to practice what we preach!
9. PRICING: FYI, last year, the median impact on NDR from changing pricing was a +14% increase among expansion-stage software companies. Message heard! This year's survey saw that 78% of respondents changed pricing and/or packaging (but you must put your time in). If international expansion is your thing, look at regional friction points: local payment methods (invoices, credit cards, PayPal, and region-specific methods), billing, and tax compliance.
10. CAPITAL: Money is still being raised at the early stage. 30% of Seed-stage SaaS companies recently received funding in the past six months, with another 20% funded within the last year. However, only 14% of Series B or later companies secured funding in the past year, stretching out that capital raised during more favorable times.
11. RECAP: Core SaaS Metrics are all summarized in this financial and Operating Metrics chart split by ARR groups and quartile. Print it out for your wall! Here is the chart showing the percentage change from last year to this year.
POD OF THE WEEK: Too much to read and digest? Watch the Pod version of OpenView's SaaS Benchmarks Report with Kyle Poyar. I skipped the first 5 minutes for you as it's all Jibber Jabber.
1. SaaS METRIC OF THE WEEK: TTV - Time To Value: Time to value is similar to ROI (return on investment), but instead of realizing the financial success of an investment, it implies achieving the effectiveness of an investment or for a customer to realize value out of your product. There is also a corollary "trough of disillusionment" your customers may need to navigate.
2. PLANNING #1: Mike Tyson put it well - "Everyone has a plan 'till they get punched in the mouth." 2023's rising cost and startup land churn have been a metaphorical one-two-face punch. So, read here from an article by Lucas F. Costa on why long-term plans don't work (and how to fix them).
3. PLANNING #2: But the ying to the yang above, if you need to be better at planning, this is a great article on planning from First Round Capital and includes lessons learned from some of the best planners (along with their processes) at AirBnB and Eventbrite - it's a very deep read and has some fantastic templates (including the "W Framework") for you to put to work.
4. PLANNING #3: This year has sped by for me, and for many of you, your calendar EOY is Financial EOY - so question: How Dynamic Is Your Revenue Plan for 2024? Adding on to #2 above, who knows what new mouth-punch could stall or even reverse your growth aspirations next year, so it's time to pull operational techniques from other departments (i.e., your Dev squads Agile ways) to create a more dynamic revenue plan - take a good read of this article from SBI for hot tips on avoiding poor Sales-based strategic planning. It even comes with an (OK-ish) downloadable planning tool (which I took the liberty to snag and sacrifice my email address for you). First Round Capital feels the same way - Annual Planning is Killing Your Growth - but take a different tack - building a three-year plan!
5. SPEND: Question - How much do you plan on spending on your 2024 operational plan? SaaS Capital has a wonderful B2B SaaS Spending Benchmark report to best forecast what to send on sales, marketing, CS, COGS, and R&D. And because 2024 will continue to be a year of LeanOps - here is how to manage burn and extend your runway into 2024 from Capchase.
6. GROWTH: Growth ownership varies across the SaaS Spectrum, but according to this analysis from OpenView Partners, sales teams dominate in sales-led companies, handling most revenue and influencing KPIs, while on the opposing side, in product-led companies, product management plays a bigger role, owning activation and self-serve revenue. Growth teams often lack clear KPI ownership. Marketing typically handles sign-ups/leads, and customer success focuses on retention.
7. SALES: See the above article about sales-owned growth - Jason Lemkin adds strategic and tactical value this week. In 2024, sales teams face efficiency demands, requiring a 4x-5x return on their earnings. So here are his 15 ways to help your Sales Team next year.
8. LAYOFFS: Not quite a rosy outlook for 2024 - according to this article from Crunchbase, high-interest rates, funding challenges, and tighter budgets mean that Tech layoffs persist into Q4 of 2023, Amazon and Google included. Layoffs are nowhere near their peak at the start of the year as some post-COVID factors have stabilized. Still, layoffs are expected to continue into next year due to economic uncertainty and fewer hiring announcements, except in areas like generative AI.
9. META: There is a lot we still need to learn about the impact of social media, in particular those operated by Meta (Facebook, Instagram, etc). Last week, Meta launched their new Meta Content Library and API. This gives select researchers access to public data on Facebook and Instagram. This initiative aims to improve transparency about social media impact and how people use their platforms. This move is a response to regulatory pressure (and public demand) for more insight into social media's societal impact.
10. CASE STUDY: How moving to Freemium stalled Equals' growth. Initially, removing barriers like onboarding calls and payment requirements led to a user surge but resulted in stalled growth and poor engagement. It is a great lesson about how onboarding is more about convincing users to continue rather than just product accessibility, and sometimes adding friction is beneficial for long-term user activation and retention.
POD OF THE WEEK: Failures! From Nick Mehta, CEO at Gainsight - his Top 10 Failures as a SaaS CEO & what he's learned.
1. SaaS METRIC OF THE WEEK: The SaaS Magic Number is simply the balance between Sales and Marketing Spend and new ARR/MRR created. It's a great number for indicative over or under-spend on marketing and sales (ARR efficiency!). Check the SaaS CFO on how to calculate the Magic Number. This article deconstructs it and highlights that it's a complex metric influenced by factors like market conditions and company spending, making it difficult to pinpoint specific areas for improvement.
2. AI part 1: We have to start here this week as we just experienced a crazy week-long year in Tech (and it's still unfolding, so this may already be old news). But to recap: Last Friday Sam Altman was the OpenAI CEO, this past Wednesday, Sam Altman was still the OpenAI CEO. I see no difference. 🤣. But in between, Sam was fired by his Board, a new CEO was then placed, Sam was almost rehired, then not hired as another CEO was hired (for 55.5 hours). Then, in a massive Coup, Sam was hired by Microsoft, 95% of OpenAI employees threatened to quit (including a Board member thought responsible for all this), then he was rehired by OpenAI, back to normal.....nothing to see here. As of the writing of this, we don't know why. Phew. Oh, and the Board has been replaced.
3. AI part 2: In non-popcorn-related AI news, the new AI silicon chip gold rush continues. Sam Altman (see above) has been investigating OpenAI producing their own chips. Microsoft will start using custom-designed AI Chips for their data centers, and NVIDIA, with hardly any current competition, crushed current earnings forecasts.
4. OUTBOUND vs INBOUND: How you handle an inbound lead vs an outbound lead is quite different. Check this article from Jack Jorgovan on how Outbound leads differ (and how to close them). Oh, and do you want to binge-watch some Outbound Sales TV? Yeah, I knew you would. The team at Predictive Revenue has been running over 50 outbound sales experiments to find out what works best (and what doesn't.). Watch the whole series on YouTube.
5. FINANCIAL FORECAST: Your 2023 new financial year is approaching! Now is always the second best time to start (the first being two months ago). This is an excellent article with a complimentary Excel download here from The SaaS CFO - it's a SaaS Financial Plan for Startups (and works for most SMBs). It also comes with a handy complimentary video tutorial for the worksheet.
6. DLG: The post on Scaling Developer-First Products was surprisingly popular a few weeks back. Do quite a few of you have a product that targets Developers? If so, then Developer-Led growth motion is the strategic choice. DLG is different from PLG as Devs are a finicky demographic. So get the DevRel ("Dev Relations") Report for 2023. The report itself is well-designed and interactive. It is also handy as Developers influence at least two-thirds of the decision to buy your product.
7. SECURITY: In recent years, APIs have become business critical. How business critical? Well, Traceable released a report last week (based on 1630 respondents) focused on the Global State of API Security, and here are some numbers for you: 88% of firms use over 2,500 cloud apps, 60% reported a data breach in the past two years, and of these, 74% had at least 3 API-related breaches. And finally, an average of 127 third parties are connected to organizations' APIs.
8. VENTURE: Pitchbook notes that 17.1% of all U.S. VC funding rounds in Q3 '23 were down rounds - but there is some light - according to a fresh Carta article, there is a shifting landscape in VC funding and deals, with a move away from investor-friendly terms despite a challenging environment for startups seeking funding.
9. GROWTH PLANNING: This is a two-part series: Part 1 outlines four high-level ways to grow revenue, and Part 2 - What growth levers should you choose for 2024? https://newsletter.mkt1.co/
10. CASE STUDY: Zapier - one of my favorite amazing facts is Zapeir's 25k Landing Pages. But check this article as it's a massive deep dive on their journey from $0 to $230M ARR and $5B valuation: Bootstrapped with $1.3M funding, leveraging SEO (and landing pages!), partnerships, and a user-centric approach for rapid growth and Flywheels everywhere.
POD OF THE WEEK: Great Podcast from the SaaS CFO reviewing the current landscape of private equity deals, the changing dynamics of valuations, and the importance of understanding the actual business model in SaaS companies.
1. SaaS METRIC OF THE WEEK: This is for all the Product people out there - Product Metrics, beyond the 5 base KPIs y'all should know (you can dive deeper here), this article outlines a comprehensive KPI system that can work for product team and other stakeholder, ensuring accountability, progress tracking, and strategic alignment, etc.
2. BUYERS: According to this new B2B software buyers survey, Many buyers are skeptical of information coming directly from companies and predominantly use Google and content marketing when researching and deciding on software purchases but prefer a range of formats to consume content and make decisions.
3. BENCHMARKS: The 2023 OpenView SaaS Benchmarks Report has dropped (based on 3,500 respondents), highlighting a dramatic drop in SaaS valuations, yet steady growth and increased financial efficiency. Key metrics include burn rates, profitability, and diversity in leadership. I'll dive deeper into this one in a couple of weeks.
4. VENTURE: DPI (Distributed to Paid-In Capital) is a measure of the total capital that a fund has returned to its investors (to date) and, when looking at their portfolio companies, VCs balance art and science in their exit strategies by selectively selling to secure early DPI gains without losing out on long-term growth potential, while being mindful of the impact on fund performance and LP expectations.
5. TESTING (MARKETING) 1/2: According to this article at Reforge, marketers often don't see expected big returns from testing because they choose to avoid major risks. Making bigger bets with strong business cases can lead to transformational success - it has some great IRL example bets from Groupon and Google, and there is also a "Big Bet Calculator" embedded in the article for you to use.
6. TESTING (MARKETING) 2/2: Experimentation and benchmarking are crucial for goal/KPI setting when starting with paid advertising experiments and calculating return on ad spend (ROAS) to scale those advertising efforts efficiently. Read here on how to maximize ROI on your early paid advertising efforts.
7. PLG vs. PLS: Product-led sales (PLS) and product-led growth (PLG) are definitely different: PLG uses product experience for growth, while PLS prioritizes and nurtures leads for sales, leveraging product insights for personalized campaigns and user nudges - learn more here.
8. AI: From the person who brought us Clippy - some guy called Bill Gates - comes a new article, "AI is about to completely change how you use computers." He predicts that AI-powered 'agents' will revolutionize computer usage within five years, enabling users to communicate in natural language and perform various tasks without switching apps. This could significantly impact sectors like healthcare and education and lead to the biggest shift in computing-based productivity since the transition from command lines to graphical user interfaces (again, this may be something he knows a bit about).
9. SECURITY: The 2024 Data Security Report is out and highlights AI's impact on security, emphasizing collaboration needs and increased budgets. Everyone is still overconfident in threat responses, and for 2024, data governance and security will be prioritized over AI initiatives.
10. CASE STUDY: The consumer version of ChatGPT is barely 10 months old, and it really upgraded features last week, but we already have OpenAI's Head of Sales, Aliisa Rosenthal, share the transformative growth story of ChatGPT, at SaaStr Annual and highlighted the future of AI, and Chat GPTs impact, especially in the workplace.
POD OF THE WEEK: Prospecting - finding the right potential customers and leads is super tricky, so check this video from earlier this year on 6 steps to kickstarting your prospecting for next year and how to create a prospecting system from scratch. Also includes some good ChatGPT-based hacks to make it work.
1. SaaS METRIC OF THE WEEK: MRR! Recurring revenue models and usage-based pricing can be complex to reconcile, but David Kellogg's insights on transitioning from annual to monthly and leveraging Implied ARR are enlightening. According to this article, there are only 5 types of MRR growth, and they hinge on expansion and reactivation - areas traditionally overlooked. Benchmark your MRR here.
2. CUSTOMER OPERATING SYSTEM: What exactly is the difference between Customer Success and Customer Support? Get started here to understand the nuances. They are both part of the same customer journey spectrum, and Totango posits, in this recent SaaStr Annual presentation, that we need a fresher look at Success and Support that they coin the "Customer Operating System" (Like the presso? Here are the Google Slides deck).
3. OPERATIONAL PLAN: Because your new strategic year is just around the corner and now is the second best time to get started, Dave Kellogg has an excellent How-to guide on presenting your amazing new operating plan to your board.
4. PRICING 1: The title of this article says it all - 5 SaaS pricing mistakes you're probably making. Stop lowballing!, pick the right metric, make purchasing easy, optimize upsells, and keep pricing dynamic.
5. PRICING 2: The Quarterly report from Vendr: The SaaS Trends Report for Q3 2023 (b2b only) is out. The remarkable drop-off in ACV that we referenced a few months back for Q2 looked like a blip, but ACV is still down 17% YoY. We're all hiking prices like crazy, though, and CAC is at a 3-year high - doubled since 2020!
6. VENTURE: Here is an interesting side note from Carta late last month: Seed and Series A funding sizes are rising; median seed at $3.2M, Series A at $9.1M, showing a positive trend for startups for the first time in 2 years. Hopefully, this remains a positive trend, as I reported a few weeks back, Carta's Q2 report painted a far from rosy picture of about a 1-in-5 raises also being a down round.
7. QUOTAS: Planning time again - Tomasz Tunguz asking questions related to #5 last week but with a sales focus given rises in AI, CAC, decreases in ACV, and budgets: How much should Quotas increase next year? His back of the napkin Math is 20%.
8. GOOGLE: This one is juicy - thanks to an ongoing court case, we get to temporarily peak into Google's most lucrative search queries over one week. The top Google revenue queries are dominated by iPhones, insurance, flights, and cable/internet services, where advertisers bid aggressively for high-value customer acquisitions. Unfortunately, there is no indicator of what the cost per click is - but judging by the Hubspot study they also referenced, they look to be in the high three to the low four-figure range.
9. AI: Big announcements on the high end of AI town. OpenAI officially launched the ChatGPT Store, with the potential for massive revenue growth via third-party developers. They are not calling them apps, though - but "GPTs." Microsoft, in its earnings call, announced that GitHub Co-Pilot has over a million paying users, which is an indicative ARR of about $150 million.
10. CASE STUDY: Complementing #4 and #5 above, Pricing: it varies. So check these case studies: Atlassian had one model; Intercom, several; Loom (now part of Atlassian!) changed with growth. There is no perfect pricing; there are always trade-offs and deep experimentation.
POD OF THE WEEK: See#4, #5, and #10 - one of the best growth levers you can work on for 2024 is pricing and monetization. So check the podcast about the art and science of pricing from Lenny's Podcast.
1. SaaS METRIC OF THE WEEK: CAC Payback - the 'payback' period is the nuance of why we measure CAC. How long until we break even? Benchmark-wise, the negative trough is way longer than you think. New B2B customers, on average, take 2 years and 2 months to become profitable. This highlights a deepening dependency on access to capital to fund a SaaS company's growth through these SaaS Cash Flow troughs. Here is an article that looks at ways to shorten CAC Payback, and this article takes an operator view on CAC Payback that includes (and celebrates) the value of net revenue retention.
2. AI OPEN SOURCE: According to this article from Crunchbase, many Startups are turning to open-source large language models (LLMs), challenging major "incumbents" like OpenAI - it's weird to call OpenAI an incumbent. Backed by investors seeking cost efficiency, these open-source alternatives offer a bunch of benefits, such as more flexibility, lower expenses, and competitive pressure, despite being technologically behind.
3. AI: Speaking of actual "incumbents," earlier this year, Mark Roberge of Stage 2 Capital took a look at the hype cycle with AI and asks who could win the go-to-market AI race - Startups vs Incumbents? Adding fuel to this one with CB Insights AI 100, the 100 most promising AI startups this year.
4. CLOUD: So let's back up the statements in #2 and #3 above with some incumbent data, given that the big Cloud players just had some Quarterly earnings calls. Looking at the Clouded Judgement summary, AWS, Azure, and Google Cloud hint at an uncertain re-acceleration for software (YOY - AWS: 12%, Azure: 28% YoY, and GCP: 22% YoY), Azure's AI contributed significantly, as without AI, its growth actually decelerated. SaaS valuation medians show overall 5.4x, High Growth of 11.0x, Mid Growth of 7.5x, and Low Growth 3.4x. Checking in with the Tomasz Tunguz analysis, he also notes Microsoft's AI-fueled growth, diversifies algorithms and boasts a booming Copilot business. Google's growth decelerates (28% to 22%), but their AI products like Duet expand.
5. INVESTMENT: A couple of weeks back, I posted that Andreessen Horowitz is back with a new, post-pandemic manifesto, 'The Techno-Optimist Manifesto'. However - looking at their 2023 investment pace so far - that manifesto is all words and diminishing dollars. Last Q was the lowest for the firm in seven years (11 deals/$1.5B) - but to be fair, this is all relatively optimistic compared to their VC peers.
6. CUSTOMER SUCCESS: For all you CS-focused people - ChurnZero has released this year's Customer Success Leadership Study - they have been running this since 2020, so we can start to measure trends: The percentage of CS teams that own the renewal process is trending downward, with dedicated renewal teams picking up the difference and Key CS metrics have shifted, with teams putting more focus on churn rate, renewals, and expansion revenue.
7. B2S: The "S" here is for Startups - do you sell to other startups? If so, Olena Avramenko, from Miro, emphasizes treating startups as a unique user category. She outlines creating a startup program, securing internal buy-in, establishing measurable outcomes, launching minimally, and scaling thoughtfully, highlighting real-world insights.
8. ENGINEER vs ENTREPRENEUR: Good context for #10 below. I love this article as it also represents the battle in my head: Engineers love to get it right, and Entrepreneurs love to get it done. It is such a simple statement that materializes in so many ways.
9. PLANNING: 2024 is almost here - and it's the time of year when I start emphasizing articles centered around planning. This year has seen startups face unprecedented churn pressures, rising costs, and an increased time gap between funding rounds, pushing a shift in strategies - to address these pressures, this piece emphasizes restructuring customer interactions and reassessing team roles to enhance value and streamline costs into 2024.
10. CASE STUDY: A masterclass in Scaling Developer-First Products with Eeke de Milliano. Developer-first companies like Stripe and Twilio revolutionized product development by prioritizing developer needs and preferences at every operational level, from marketing to customer success.
POD OF THE WEEK: This was a good listen for me - in B2B land, we're not up against "the competition"; we're up against buyers' inaction. They are more worried about messing up than making a decision. Resonate with you??? Then, take a listen to April Dunford talking with Lenny's Newsletter on typical B2B purchasing processes and providing a two-part sales pitch structure that could actually transform your sales process.
1. SaaS METRIC OF THE WEEK: End of year is just around the corner - so it's Metric Review time. If you desire to build a data-driven organization in the new year, rigor and discipline have to be built around it. Sachin Rekhi's article discusses why metrics reviews should matter (TL;DR decision-making, inspection, intuition).
2. LAW: From CBInsights is a 67-page report covering the 11 laws driving success in tech. These law-isms cover concepts such as Amazon's 2-pizza rule, the 80/20 principle, and more.
3. P&L + COGS: SaaS P&Ls are structured in specific ways, as defining what goes into the cost of goods sold (COGS) section is essential. So, take a good read of what the SaaSCFO recommends to include for COGS and how to structure a SaaS P&L. According to the Author - 90% of them are structured incorrectly, 5% are close, and 5% are correct.
4. PUBLIC CLOUD: The three major providers — AWS, Azure, and GCP - remain dominant in the Public Cloud realm (65% combined as of Q2 23). Amazon's AWS remains, by quite a margin, the most widely used public cloud platform hogging about half of that 65%. Its cloud business has primarily driven Amazon's overall profits in recent years. In 2019, AWS was 50 percent of Amazon's operating profit, representing just 13 percent of total net sales. By the end of Q2 2023 it was 70%.
5. CYBER: With all kinds of cyber attacks happening lately, it's time to hammer this home: Regardless of the size of your SaaS business, for 2024, security should be part of your dev cycle, but also know your weak spots. Founder Institute discusses 6 points of vulnerability in a tech stack that may be a bit leaky. Security should be rolled up into the process - DevSecOps being the new port-portmanteau, or is that SecDevOps? Heavybit also has a great article discussing cloud security challenges (as apparently, if we extrapolate this data from #4 above, two-thirds of SaaS is now sitting on Public Cloud).
6. PRICING: Last week's Freemium post was popular. It's time to double down on pricing again this week with a featurette based on Paddle (aka Profitwell)'s 'State of SaaS Pricing in 2023' report. Some highlights for you: 94% of B2B SaaS firms update pricing yearly; The most common success metrics are average revenue per user (ARPU), 34%, followed by annual recurring revenue (ARR) - 18%; Free rules: premium-tier free trials dominate (44.2%), followed by freemium offers (18.7%).
7. DATA: Startups need to have a data-driven focus for growth. This article from ProductLed introduces the "Customer Scorecard" and highlights the power of a key metric, the "North Star" (see #1 above), to align team and user interests.
8. FAILURE: It's a common tech-ism in the tech industry that Innovation needs a lot of failure before success, something Startups and the industry often do not configure culturally. I agree from a design perspective - but this article also highlights that narratively, you should not glorify it - try to show a baseline of success (with good failures thrown in).
9. REPRESENTATION - VENTURE: <SIGH> Year to date, Women-founded startups raised 2.1% of the total capital invested in venture-backed startups in the US according to Pitchbook ($2.4B out of $125.85B ), which is ever so slightly higher than the 1.9% of all of 2022. If you think that is pathetic, read on - Black founders received just 0.13% of venture capital this Q, according to Crunchbase - $39.7 million out of $29.9 billion. This is a massive year-over-year drop (1.2% last year).
10. CASE STUDY: A continuation of #4 above - This case study covers the entire history of AWS and is a fun read - it also puts AWS's current ARR at $70B!
POD OF THE WEEK: A mash-up of #1, #6, and #7 Sustainable growth in SaaS using data and pricing, with Paul Lynch, the CEO of Chargify.
1. SaaS METRIC OF THE WEEK: Usage-based pricing and MRR/ARR models are often mentally complex to compute collectively (I know this from experience), so this article was a sight for sore eyes earlier this week, discussing the mental mapping required from Annual to Monthly and Usage-Based Metrics (and introducing Implied ARR) from David Kellogg. A recent analysis of usage-based pricing from Bessemer Ventures is here to help you think about your own pricing models.
2. VERTICAL SAAS: A lot of Big Tech is threatened by narrowly focused SaaS companies taking market share in niche areas and building massive businesses (for example, Toast is currently valued at $10B +). Check the difference between vertical and horizontal SaaS here. Then, look at how these vertical SaaS companies are taking market share from those cloud giants and how AI may accelerate everything in Vertical SaaS even more.
3. VENTURE: According to a new report from Pitchbook - VC funds have hit a pretty significant low, -17% (that's a minus, not a hyphen), the worst in a decade. Downhill, this means that Firms will need more access to capital. Stability is forecasted for 2023, though, with generative AI as the promising focus.
4. EXPONENTIAL GROWTH: It's all marketing hype and doesn't exist in real life. Take a look at this article, which explains it more by taking a deep dive into the numbers of "Exponential" companies such as Slack ($0-$10m ARR in 10 months!!), Facebook, and HubSpot. According to McKinsey, despite the sector's image as a bastion of hypergrowth, only a tiny share of SaaS companies sustains growth rates above 30 to 40 percent.
5. DEVOPS: Google Cloud's DevOps Research and Assessment (DORA) team has just released their 2023 DevOps report. AI has yet to deliver substantial benefits to development teams - but in my experience, that is a lagging metric. Current key success factors for high-performing teams include user-focused development, rapid code reviews, and a high-trust culture.
6. CONTENT MARKETING: Mastering great content writing is a skill - and I've snagged an excellent guide for us all here on that topic; here is great info on how to plan a data-backed B2B content marketing strategy
7. FREEMIUM: Freemium is only sometimes the best pricing strategy for every SaaS startup. Beyond free trials and freemium models, you can give your users Opt-In Free Trials, Opt-Out Free Trials, Usage-Based Free Trials, Freemium, New Products, and Sandboxes.
8. -1 to 0: One for your tech-dictionaries and inspiration read when you need to think differently. In startup land, it's a tech-ism on "going from 0 to 1". But this article argues that we are missing a step - the "-1 to 0" stage is key. It's choosing your next decade's focus and replacing good ideas with great ones.
9. TECHNO OPTIMIST: Don't put away your tech dictionaries just yet - pencil this one in and save it for when you have time, as it's a longer form read to process. Andreessen Horowitz is back with a new, post-pandemic manifesto, 'The Techno-Optimist Manifesto.' Their Pandemic Manifesto was "Time to Build," this new one is an extension of that that argues against the current pessimistic view of technology, embracing it as a crucial driver of societal progress and solution to problems. It encourages fostering growth through technology, asserting that it's pivotal for overcoming challenges and improving human living standards.
10. CASE STUDY: Supabase's CTO discusses the company's unique "Launch Week" approach, emphasizing regular product updates and team autonomy. Integral to their Product-Led Growth strategy, this method has shifted the needle with their growth.
POD OF THE WEEK: Beneficial for me - Modern Engineering Management with Russell Smith, co-founder and CTO at Rainforest QA. He discusses some core engineering management concepts essential for success in today's fast-paced, mainly remote, and highly competitive engineering environment.
1. SaaS METRIC OF THE WEEK: Retention. Chartmogul's SaaS Growth Trends in 2023 report notes that retention strategies are now considered growth strategies. And last year, Companies with best-in-class retention grew at least 1.8x faster than their peers. Check out this other great ChartMogul article that outlines how to calculate, benchmark, and track retention (along with some good ol' fashioned strategies).
2. MARKET SIZING: The dreaded slide on everyone's pitch deck that is required to outline their business model and pricing. It's a Tech-ism that if the market is not huge, same with your startup. Understanding the nuances of TAM, TOM, and SOM is a great way to complete the slide, but get your TAM sorted first via this guide from Bling Capital on how to size a market (in 30 minutes!). Jason Lemkin has a great article on what to do if your TAM is too small for VCs.
3. VALUATIONS 1/2: How is it already Q4 2023? A first cut of Carta's State of Private Markets report for Q3 is out (PDF here): Valuations are on the rise or remain steady from Q2, particularly in Series D and E+ stages, although still below 2021 peaks. Median round sizes are mostly consistent, with notable growth at Series A. Q3 may show weaker venture activity than last Q; see below.
4. VALUATIONS 2/2: Take a deep read of this article from Janelle Teng, who does terrific work on valuations and the current disconnect between public and private markets. Carta's Q2 report painted a far from rosy picture of about a 1-in-5 raise being a down round. With rising down rounds and tougher fundraising conditions, demand vs supply for VC funding now sits at 2.9x (for late-stage startups) according to Pitchbook, which also estimates the current IPO backlog (just in the US) of 200 companies, which Bank of America estimates to be about ~$60B.
5. AI: This is kind of a "Valuations" addendum to the above posts. AI startups look to have snagged all the considerable valuations in Private Markets despite their current lack of revenues, as discussed by a recent panel at Tech Crunch Disrupt. Sequoia also recently published a great article on generative AIs showing rapid growth but poor retention.
6. MARKETING: With the '22/'23 move towards LeanOps and profitability, Marketers are facing increased expectations of optimizing spend-to-value to deliver profitable growth. According to this Gartner report, 75% of CMOs are now asked to do more with less. All marketers need to take a read - there is a significant need to optimize tech, align KPIs to business outcomes, and prioritize budgeting - because this is a triple whammy: Budgets are being reduced while marketing costs are rising, and returns are diminishing.
7. CRYPTO: It's been a while since I last mentioned anything Web3. AI has taken all of the energy out of Web3, and the crypto industry has fallen back to Q4 '20 levels ($2.1 B across 297 deals for Q3 2023) - over half of that still originates from US investors.
8. BAD DEVS: According to this survey from SauceLabs (provocatively titled "Developers Behaving Badly"), 67% admit to pushing code without testing. Amid 2023 layoffs, 70% used others' credentials to bypass security, and 75% avoided protocols - many of the issues lie in systemic pressures and unrealistic business expectations.
9. CLOUD 100: I referenced the Cloud100 a couple of months back, but the team at Bessemer Ventures always put on a good Cloud 100 show at SaaStr Annual each year, which happened last month. After a 50% drop in 2022 (they call the "SaaSacre"), BVP's Cloud Index rose 25%. Still, they note a move from rapid growth to profitability and efficiency (a 6:1 to 2:1 shift on revenue to valuation ratio). AI plays a pivotal role in this success.
10. CASE STUDY: This article showcases Hootsuite's effective content repurposing strategy. By converting existing material into many diverse formats unique to different platforms, Hootsuite maximizes its reach efficiently. Proactive content repurposing is an excellent brand approach to help Marketers with the 2023 challenges outlined in #6 above, sustained and capital-efficient engagement and reach.
POD OF THE WEEK: This is the video version of #9 above - the Cloud 100 for 2023 from Bessemer Ventures from the SaaStr Annual conference. Always a great watch.
1. SaaS METRIC OF THE WEEK: CHURN: In this post, Lenny Rachitsky asks, "What is a good monthly churn for a SaaS business?". Zero is the obvious correct answer - but he took to a benchmarking exercise and sourced good data to develop this chart. For B2C SaaS: 3% - 5% churn is GOOD, and less than 2% is GREAT. For B2B SMB: 2.5% - 5% is GOOD, less than 1.5% is GREAT. For B2B Enterprise: 1% - 2% is GOOD, less than 0.5% is GREAT.
2. DEV TOOLS: Anna Debenham of Boldstart Ventures was given access to a subset of this year's raw data from OpenView's Product Benchmarks Report focusing on dev tools. The report reveals trends in dev-tool product-led growth strategies - 31% organic leads and increasing reliance on sales-generated leads. Conversion from site visitors to users is 10% (median), with varied activation rates depending on the product. The median 28-day retention rate is 23%, and conversion to a paid account is 5%. The article discusses a new entry for our Tech Dictionaries - a "sandwich model" strategy, combining product and sales for sustained growth.
3. FUNDING: One of the cool things to come out of the SaaStr Annual conference every year is the updates to the SaaS Funding Napkin from Point Nine Capital. 2023 has been a tough year - so it's great to finally get the in-depth dive into what it takes to raise capital in 2023 and the updated TL;DR napkin. You can also watch the SaaStr Annual 2023 presentation from last month here.
4. VENTURE: Last month's post about the SaaS IPO marketplace was popular, and I had a few responses debating whether the potential end of the IPO freeze is happening now. Well, guess what? It looks like it's not over yet. According to this article - VCs are advising their portfolio startups to postpone their IPO plans until the interest rates stabilize, but really a) Recent IPOs by Instacart and ARM were pretty low energy, and b) They want rates to drop, not stabilize. It's all about fund returns.
5. AI 1/2: Cynically, big tech companies are trying to moat out and win the AI space via lobbying and regulatory capture.
6. AI 2/2: According to this article and the full slideshow from Battery Ventures, despite the tech-spend turndown, 50% of enterprise buyers are expecting to increase their AI spending in the next 6 months, and 79% plan to deploy generative AI in the next year.
7. PRODUCT MANAGEMENT: Requires outstanding leadership - here are interviews with the Head of Growth at Reddit and the Head of Product at Twitter (pre "X") on creating a good vision and strategy, but quality Product Discovery is the hidden skill. This article leverages Slack and Dropbox examples, highlighting the importance of understanding market gaps and user needs with various techniques, such as reverse discovery, continuous discovery frameworks, and competitor analysis sprints, that can transform product leadership.
8. BENCHMARKS: Check this fun little Product Benchmarks calculator from OpenView (referenced in #2 above) that you can use to see how you compare to the 1,000+ B2B SaaS companies surveyed in our 2023 Product Benchmarks.
9. COLD OUTREACH: Cold email is still a go-to modern-day sales tool. Predictable Revenue has a PowerPoint deck for four pillars constituting a quality sales-based email campaign. Here is a 3-step guide to getting noticed by email, and finally, check out this "How to automate cold outreach motion" cheat sheet by Lucas Perret; it includes triggers and prompts.
10. CASE STUDY: The never-ending quest to create the perfect homepage. While there's no such thing as a "perfect homepage," there are certainly best practices you can follow - this article breaks it all down.
POD OF THE WEEK: Speaking of regulatory capture (#5 above), this is a super fun talk from the All In Summit (of All In Podcast fame) by Bill Gurley (of SuperPumped fame) about how regulation favors incumbents.
1. SaaS METRIC OF THE WEEK: VALUE-BASED PRICING: Value-based pricing is a tough nut to crack as it makes the most of what the maximum cost customers would be willing to pay for a product or service - this means there is no magic guesswork or thumb-suck number. These prices need to be arrived at Empirically. Paddle.com has a good guide on what this means (with examples), and Paddle/Profitwell has a total guide on making it happen (and how to go about calculating/measuring it).
2. PRICING: This one is totally a follow-up to #1 above and is interesting as the author is pitching a new, better (gasp!) way to decide your product pricing. HINT: It's all about how you ask the question. And this variant on how to research and implement a value-based pricing model.
3. PRODUCT MARKET FIT: Oooof - another Startup-ism - More than 50% of the time, the lack of Product-Market Fit (PMF) factors into the reason a startup fails (keep reading this article, though as it goes through how StartupOS figured their PMF out). AirTree (an early-stage VC) has just published this article taking a look at what metrics VCs like them look at for signs of product-market fit, as well as what the red flags are. Also, this article has some great PMF definitions. PMF was called "the only thing that matters" to early-stage startups by Marc Andreessen 12 years ago. Now, his team gets more nuanced, suggesting focusing on product-user-fit as an indicator of achieving PMF. A similar nuance is also true post-PMF with repeatable-scalable revenue models as a precursor to a repeatable-scalable business model (you know - the one with actual profits).
4. OPEN SOURCE AI: Earlier this year, I posted a cool dashboard of the top open source projects by growth, retention, and usage. (It can be a little confusing, so here is a Substack article outlining the dashboard in more detail). This article is pitching why Open Source versions of AI models will win over the long term.
5. SALARY (Updated): Hey Founders, a TechCrunch article earlier this year recommended that founders pay themselves rather than doing it for the equity - after all, paying people is what Venture should be for, right? So the bigger question is how much? Unfortunately, this doesn't mean you get Market Rates. Startup founder's and CEO salaries can often range from zero to a gated raise based on ARR. See here for lots of good answers and also lots of different situations. Christoph Janz of Point Nine Capital has recently taken this a little further with a founder salary calculator based on European market research, so the amounts are in Euros.
6. TECHNOGRAPHIC: Add this doozy of a Portmanteau to your dictionaries and spell checker as it is the label for the Ponzi scheme of SaaS: How Many Technologies Can a Company Adopt at Once? Answer - there is always one more (JK, but not really).
7. GROWTH BENCHMARKS: Here are some excellent benchmarks for growth-stage startups from ICONIQ Capital (downloadable PDF). It is similar to the public market report I posted in last week's newsletter - topline performance reductions (ARR, NDR, etc.) Companies with less than $25M ARR should be shooting for 200%+ growth with $100K in ARR per employee!
8. PAYFAC: Crack open them Tech Dictionaries again: PayFac (or Payments Facilitator) is something I have implemented to create an additional (recurring) revenue line to the business, but it was only this week that I discovered a pre-existing portmanteau for that. Stripe has a good guide on bringing PayFac in-house, and here is a downloadable PDF on the same topic. Very low touch once it's up and running!
9. INTELLECTUAL PROPERTY (AI): Historically, in the Tech World, many startups have been vulnerable to their competitors producing copycat technologies - looking at you Meta/Facebook. Generative AI raises newer questions on intellectual property – who owns AI-generated content, and who benefits? This article from Benedict Evans delves into the complexities - looking at ownership, moral rights, and potential exploitation.
10. CASE STUDY: Many Startups discuss their early customer acquisition strategies. For the first 10, cold outreach, personal networks, and social media are key. By 100, word of mouth and platforms like Product Hunt/G2 gain momentum. Getting to 1,000, SEO, social media, and product dev take over. Many wish they'd explored untapped avenues sooner.
POD OF THE WEEK: Complementing #1 and #2 above, in an episode of the SaaS Open Mic podcast from earlier this year, Marc Boscher, CEO and co-founder of Unito, discusses continuous pricing experimentation and strategies to ensure pricing migrations don't disrupt existing customers.
1. SaaS METRIC OF THE WEEK: Lead scoring is a well-established way of assigning numerical values to prospects so sales and marketing teams can optimize their funnels and convert faster - how does that work in a Product Lead World? This blog has all the answers.
2. MLP: For your tech dictionaries - that's Minimum Lovable Product. MVP (Minimum Viable Product) is OK, but what if no one likes it? FirstRound Capital uses the analogy of burnt pizza - pointing out that the fastest and cheapest functional prototype could produce a poor or flawed version of something that people may actually love.
3. VALIDATION: I'm sure you have heard repeatedly that validating a product is a make-or-break part of a startup's scale-up process, especially at teh early stage - but how do you do that properly? Check this list of techniques and tools (it all starts with Market Research) - and get more into that starting here (with free templates!)
4. PUBLIC SAAS: Meritech dives into the $2 trillion SaaS Public market, showing some pivotal shifts: Revenue multiples have dropped by up to 80% from the '21 highs (median multiple is 6.5x today), and a stark trend of trading growth for profitability and efficiency. NDR is also at an all-time low - 115% upsells and churn impacting that metric hard.
5. DATA PRIVACY: Tracking and personalization have historically been a big part of marketing efforts via tracking Cookies. However, regional legislation (such as GDPR) and the death of third-party cookies have changed everything. Indiehacker dives deep into how to track users ethically. What does that mean for personalization? Venturebeat dives into this topic and also looks at how marketing, in general, can be more private.
6. GOVERNANCE: Mark Suster (from Upfront Ventures) has a series on his Medium Blog covering StartUp Boards. With a follow-up article that shows a board structure based on stage! He also provides a blog post AND a 43-slide deck.
7. SDRs: A couple of weeks back, I got a prompt from a friend asking about SDRs, and I realized it has been a while since I have written much about them. In past long-form newsletters, I have referenced SDR metrics and quotas, and ICONIQ Capital has their 2023b Sales Compensation guide discussing SDR comp from earlier this year as well as the updated 2023 SDR Bridge Group SDR Survey - answering all the great benchmark metrics such as How much time does it take for an SDR to ramp up? And how many calls does it take to book one meeting? What about the SDR:AE ratio? This article goes all out and pitches a Mendoza Line for sales reps based on value to the company (not just quotas). BONUS: SDR compensation calculator (Excel).
8. EMPLOYEES: Here is a great question: How many employees should you have based on your ARR? In 2023, this answer may be much lower in our Leanops market, but my former big boss David Sacks has a great slide from his SaaStr presentation on optimal SaaS Org Charts (Full deck here) - Series A is 40-50 at 1m ARR. Yup, that's only $20-$25k ARR per employee - full report here, which expands into what roles you should hire and what the org chart looks like.
9. POC: Switching to proof of concept (POC) based paid trials is working well for me as part of our customer journey and is the fastest time-to-value metric we can deliver for various enterprise stakeholders. Want to get your POC up and running fast? The team at Work-Bench has a step-by-step framework AND a template of a POC Agreement for you here.
10. CASE STUDY: Airtable announced it would lay off about one-third of its team this week following a similar-sized round of layoffs back in December. This has prompted some online reviews of the business as Airtable is currently valued at $11.7B, and there are now some significant doubters (including Anand Sanwal of CBInsights)
POD OF THE WEEK: Another from David Sacks, fresh out of this year's SaaStr Conference, covering what the future of SaaS may look like - lots of SaaS-AI, what it's gonna take to raise a Series A these days, and why Seed investing is currently not a good deal.
1. SaaS METRIC OF THE WEEK: Churn. See #6 and Pod of the Week for more on Churn in 2023. According to CatchJS, though, we're all calculating churn rates wrong. If you love Statistics, the article is well worth reading and it even gives some Python code to perform the more complicated probability-based equation they recommend. You can then check out this tool (as a handy Google Sheet) from Newfund to analyze the strength of revenue streams for any B2B startup. A complimentary article outlining the methodology behind the tool is here (and you should read it first). Then, dive into Bessemer's new article on how to fix the Churn leaky bucket.
2. PLG: (for complex products): While PLG may only fit a few enterprise players, there is hope. Companies are starting to apply PLG techniques in totally new settings - such as with complex products.
3. SMB: In general the Old SaaS-Skool guidance was to start chasing the biggest contract values as soon as possible (hello Enterprise!). However, according to Craft, newer school thinking is to focus on SMBs, as sales velocity is a better strategy than chasing contract size - and SMBs are plentiful. However - the downside of SaaS-for-SMB is discussed in this article from SaaStr - CHURN! BONUS: Linking 2 and 3 together here - Why SMB and Enterprise sales have nothing in common from Jason Lemkin.
4. ZERO-BASED DESIGN: Another concept for your dictionaries: Zero-based design has emerged as a potent approach for businesses to improve performance and redesign their products, services, and even organizations. McKinsey goes even deeper with a look at this from what they call Operations Practice.
5. AI: McKinsey's annual State of AI survey reveals the breakout adoption of generative AI: 30% of those surveyed indicated regular business use. Even though generative AI is on the rise, overall AI adoption remains steady with 40% planning an increase in AI spend. YC's new summer cohort is also 65%+ AI.
6. GENERATIVE AI: Adding a spin onto #5 above. Generative AI has seen success in B2C applications (like ChatGPT), but this article makes the case that Generative AI faces uphill challenges in B2B. Due to a lack of industry-specific data, it needs to be more accurate, outcome-focused, and in-depth. They pitch combining LLMs with proprietary data and human expertise to create practical B2B generative AI applications.
7. STATE OF SAAS: Profitwell is the King of data-driven content. Paddle acquired them last year, but the content coming out this year is still excellent. Paddle just launched Forward, their own little conference/product launch, and as part of this, they presented SaaS Market Conditions for 2023 based on data from the 34k companies on the Profitwell platform. The summary is here - but watch the Video (linked below in Pod of the Week) if you have the time (first 10 of a 30-ish minute presso). Growth is slower, PLG Tactics are everywhere(backing up #2 above), especially try-before-you-buy, and CAC is way up in mature markets (US, UK, etc.).
8. SALES: OK - who doesn't want this from their sales team? From Openview, here's how to increase sales by 33% without hiring more Reps: it's all about simplifying sales and protecting selling time.
9. BUDGETS and FINANCE - DEEP DIVE: A lot more of you than I expected clicked the Budget and Forecast links last week - so let me add one more to help with your Financial Year plans: Bessemer has a significant six-part "fundamentals of startup finance" series - Part 1 (goldilocks Budgets), Part 2 (Forecasts), Part 3 (Hiring), Part 4 (Growth and Profits), Part 5 (Pricing) and Part 6 (Metrics and benchmarks).
10. CASE STUDY: Intercom's Des Traynor and Fergal Reid share insights on leveraging AI language models (like GPT-4) to transform Intercom's SaaS products, highlighting the importance of low-risk problem selection and a centralized ML team.
POD OF THE WEEK: Following on from #6 above. I tried to have this Video running in the background but had to pause everything else and give this start of this Video presentation my full attention - it's absolute solid data, but with some skippable Marketing thrown in. Winning new business from existing customers is becoming even more profitable than acquiring new business, but Churn is now at an all-time high, seriously eroding new business.
1. SaaS METRIC OF THE WEEK: SaaS METRIC OF THE WEEK: CLTV: This metric represents the average revenue that a customer generates before they churn - Customer Life Time Value. ChartMogul has a great online calculator here. Go to 'advanced mode' as this calculator references the traditional formula and the David Skok version (which is the advanced one but viewed as more realistic)... Check here for a thought-provoking read of why your LTV may be lower than you think.
2. GROWTH: ChartMogul's SaaS Growth Report is out and has some juicy insights on SaaS growth metrics. Quick peek: Growth is steadying (kind of good news - it's not shrinking), top-notch startups grow over 100% YoY, and here is one I haven't considered before - SaaS looks to be mildly seasonal (and corollary to budgets?) with Q1 being the best and Q4 the slowest.
3. BUDGETS: Speaking of annual budgets - for those who run calendar Financial Years - it's Budget/strategy planning time! It's time to get next year's budget drafted, circulated, revised, completed, and board approved! Don't panic. I have an article for you to read for that (it's a couple of years old but still prime) to better understand how businesses allocate their resources - it's based on interviews with over 600 SaaS startups.
4. FORECAST: This is a great article to get you to forecast your subscription growth better, shifting focus from immediate earnings to long-term revenue. It uses a great walk-through example emphasizing the importance of understanding retention rates.
5. IPO MARKET: Is the Public Market back for Tech/SaaS? I'm still calling a Q1 '24 return to "normal" (but fewer IPOs than the bonkers 1035 IPOs of '21), but Klaviyo just submitted their S1, joining ARM and Instacart. This is definitely a signal, and the Team at Genuine Impact also sees a potential AI-infused spike. Other VCs are not as convinced. Looking back to where we were pre-downturn, the average SaaS IPO took 12 years. It also took, on average, ten years to get to a $1B+ acquisition/exit in SaaS.
6. MULTIPLES: Adding more context to #4 above, Interest Rates and Forward Multiples are two significant considerations with Tech IPOs. Jamin Ball of Clouded Judgement runs the numbers deep in this post and notes that forward multiples are currently below the 10-year average (6x vs. 7.8x), BUT when adjusted to growth (because every software company has seen their growth slow down), current multiples are currently ~50% HIGHER than their long term average. Public valuations are technically still historically expensive.
7. PPG: Grab your tech dictionaries, everyone! I have another acronym for you: PPG, or People Powered Growth. This derivative of Product-led growth consists of a cross-functional team with customer-and non-customer-facing members. It's a People + Product partnership that develop and test solutions, searching for ways to scale human interactions/intervention with a product. Some examples of PPG companies are Drift, Dropbox, and Loom.
8. SALES: Looking to establish your first (non-PG) SaaS Sales Comp plan? So first, check this excellent report on the State of Startup Compensation from the team at Carta. They look into questions such as what makes up for the largest share of compensation spend, what roles get paid the most, and startups are still hiring remote workers (yes, remote hires now represent 62% of all new contracts). And then, read Jason Lemkin's post on constructing a framework for the first SaaS sales compensation plans.
9. MVSP: Here is one more for your tech dictionaries - this stands for Minimum Viable Secure Product. This is a simplified security checklist for B2B software and outsourcing providers. It outlines essential controls to ensure a minimal yet effective security posture. It's not quite the SOC/ISO/APRA level stuff I have to deal with - but it's great for those outside of Enterprise and Financial Services.
10. CASE STUDY: Check out how Vanta found product market fit, starting with signing up 600 customers without a website and totally solving their problem without first writing any code. You could also fast-forward to the timeline graphic version here.
POD OF THE WEEK: Funnel and revenue math, kindly explained by Mark Roberge and Matt Plank of Rippling in the Science of Scaling podcast.
1. SaaS METRIC OF THE WEEK: From Andrew Chen of a16z this week (who is now LA-based - see #3 below as to why that's important): An 80-page slide deck of the red flags and magic numbers that investors look for in your startup's metrics. The article is the best part due to Andrew's commentary - but if you want the PDF, I got ya. Just click here.
2. VENTURE: Venture funding, once abundant, has dried up and become scarce. With a current average 1.5-year gap between funding rounds, cash-strapped startups are either shutting down or seeking buyers. An imminent startup bloodbath is predicted, as indicated in the article. There is little bonus X-Thread on VC returns that explains some of the reasoning: From 11,350 startups, only 1.1% drive the VC fund returns.
3. FIRST PRINCIPLE THINKING: This is a famous Silicon Valley principle/tech-ism. Take a read here on the concept of First Principles Thinking. Not gonna to lie; I've re-read it again this week, and it is a great way to make my brain hurt. Want more? Fine. Here is a complete guide/website. Now that you are an expert on this principle, here is how First Principle Thinking can be applied IRL - in this example, towards a Product Lead Growth business.
4. SaaS COUNT: It's always been a SaaS-ism that the US leads the pack regarding SaaS country of origin - but how big is the lead? Check this post from earlier this year - there are around 30,000 global SaaS companies, and the US claims 60%+. It's a star-spangled dominance; the UK and Canada are the next two very distant countries to round out the podium. Efficiency is the secret sauce, not layoffs. Don't just take my word for it. Check the stats.
5. PERSONAS: SaaS B2B Marketing is a unique beast - and getting into the minds of an idealized customer often requires creating personas - You should try it - it will make you a better SaaS marketer. For most SaaS companies, creating multiple personas is often a strategic necessity. So here is an additional differentiator (and what the difference is compared to a persona) of an Ideal customer profile.
6. MARKETING: More for your SaaS dictionary: Buyer Intent Data. There is never a one-size-fits-all marketing strategy and channel for a business. So, how does a company find the best marketing channels for them? This article suggests that everything needed to answer those questions is already within the data a business generates daily. (You'll need Personas - so complete the links above.)
7. COMMAND: A much-needed read for me this week. Being 'in command' of your business doesn't mean you're in control, and that's OK - it involves proactive, agile leadership that drives change, acknowledges challenges, and seeks solutions, ensuring autonomy and accountability for success.
8. DILUTION: This is a fantastic Carta Chart: How much is equity dilution standard? At the Seed and Series A stage, businesses usually see around 20% equity dilution. At later stages (Series C-D), dilution drops to ~10% per round.
9. AI: Race Capital has a thought-provoking article covering areas they are excited about within AI - Disruption of horizontal SaaS, AI for Enterprise enablement (and look what OpenAI did this week), Commoditization of the cloud, etc. McKinsey has their more cerebral insight here as a bonus.
10. CASE STUDY: Everyone loves a good old Pivot story - here are 5: The Hidden Backstory of 5 Startup Pivots That Grew to $43B including Lyft and Discord.
POD OF THE WEEK: How to build a SaaS landing page that converts from the team at Product Led.
1. SaaS METRIC OF THE WEEK: 32 SaaS KPIs Every Company Should Track, awesomely split across five different divisions: Marketing, Sales KPIs, Finance KPIs, Revenue, and Customer Success KPIs.
2. CONTENT: The idea that I should view content as a product was a valuable marketing insight. As was being told that the strategy of "producing ten blog posts" was wrong. Read this Two-part blog (part 1 and part 2) to change your mindset on what good content should be.
3. DUE DILIGENCE: For investors, what the heck does due diligence look like for pre-seed or pre-rev companies with no real traction or trends to share? It's hard to do - but this article captures many vital areas, especially founder equity, non-founders on the cap table, and founder vesting.
4. PERSONALIZATION: Twilio released their 2023 The State of Personalization report. AI is here - more than 9 in 10 businesses are using AI-driven personalization to drive growth, and over half (56%) of consumers surveyed say they will become repeat buyers due to personalized experiences (a 7% increase YoY).
5. VIDEO CONTENT: Nailing introductory and Demo videos is a total art form. Need help to figure out where to start or have video-block? Get inspiration from this curated collection of some of the best, and here is a list of 6 videos every SaaS Company needs. (TL;DR Explainers, Company, Testimonials, landing, page, FAQ, and Personalized Sales).
6. SHIP IT: Learn how to ship it real good in the tech world with these six offbeat strategies, from ditching staging to nurturing clear engineering ownership, ensuring success in the fast-paced startup universe.
7. ENTERPRISE: Check out the State of the Enterprise report by Insight Venture Partners - good reading if this is the sector you are selling into: Security is still a top priority, data & AI budgets have expanded the most, APIs are becoming mainstays of the modern infra stack within enterprises.
8. VENTURE: Tomasz Tunguz has done some hard-core statistical analysis examining Startup investing trends. It's a technical read but given current trends, round counts should revert to the mean sometime in H2 2023, which he calls ~ 1000 Seed, 240 Series A, & 65 Series B investments per quarter.
9. SAAS EFFICIENCY: It's surging. Many (public) SaaS companies are showing increased efficiency while maintaining growth: Toast's +6% EBITA, Monday.com +26% cash flow, MongoDB's +5% margins, Snowflake's 46% predicted cash flow, and HubSpot's 30% growth with double-digit margins. Hopefully, efficient growth trends like this will continue.
10. CASE STUDY: Complimenting #7 above, moving into the Enterprise is no mean feat. Here are the top 5 Lessons from Howie Liu, the CEO of Airtable, on their Upmarket mission. Bonus content: how Airtable leverage SEO. And here are ten tips to start selling to big companies as a little guy.
POD OF THE WEEK: This is a great one - The State of the Seed Market, specifically discussing why Seed is broken and what happens from here.
1. SaaS METRIC OF THE WEEK: CLV. - How far out should you calculate your customer's lifetime: two years, three years, five years? Turns out the shape of the decay curve matters, as does max customer lifetime.
2. CLOUD 100: Bessemer Ventures/Forbes created a "Cloud 100" list eight years back, an annual ranking of the world's top private cloud companies. The 2023 list looks a little different. This year saw the first-ever drop in overall aggregate value. Also, Stripe has been dethroned from its usual #1 spot by, surprise, surprise, AI with OpenAI, who also made the list for the first time. Combined, the top 10 companies in the Cloud 100 are worth a staggering $211 billion and average 26x ARR in forward multiples.
3. NETWORK EFFECTS: Building and scaling products like Slack and Zoom is still quite challenging, so read this conversation between Andrew Chen and Des Traynor on building networks that make your product thrive.
4. VENTURE: According to the Q2 2023 US VC Valuations Report from Pitchbook, early-stage startup median valuations dipped to $38.5M in Q2 2023 from the Q3 2022 peak of $45M - interest rates, bank drama, and economic volatility look to be major influences, which is why investors are eagle-eyed for solid fundamentals.
5. VENTURE: This week, Tomasz Tunguz notes that the correlation between public market trends and venture activities during the 2008 financial crisis might not have felt apparent at the time, but historical analysis reveals a strong connection - which we may be able to learn from this time around.
6. PRODUCT MARKETING: In this article, Kim Caldbeck of Bessemer Ventures outlines "The Six Ps" framework from Dan Olsen's Lean Product Playbook for effective product marketing. These Ps - persona, problem, proposition, positioning, product, and promotion strategy - form the foundation for successful product marketing.
7. PLG MODELS: Free trials and a freemium model aren't the only options for "free" experiences you can give to your users: Opt-In Free Trials, Opt-Out Free Trials, Usage-Based Free Trials, Freemium, New Products, and Sandbox.
8. PMF: OMG - we now have a Product Market Fit Report! High Aplah has put together some research on PMF to help those founders benchmark their progress against others on the same path: Only 56% believe they have product-market fit, and 29% think they will do this within the first 12 months of founding.
9. ROBOTAXIS: Self-driving companies Waymo and Cruise have been given permission to launch 24/7 driverless taxi services in San Francisco. This is a substantial industry shift, allowing these companies to expand operating and charging models; what could possibly go wrong?.
10. CASE STUDY: This one is for the CFOs: Five CFO Learnings scaling from $10M to $100M+ ARR.
POD OF THE WEEK: Take a watch of Four SaaS experts who discuss sales tech stacks, emphasizing the importance of purpose-driven tools and the need to understand your problems before adding software.
1. SaaS METRIC OF THE WEEK: PQL vs Activations. In my mind, the try-before-you-buy approach to software subscriptions is the best way to get to my money - that is pretty much what PLG is - so put away your SQL and MQL metrics for a second and focus on their newer cousin: PQL (Product Qualified Leads) - this tracks potential customer who has exhibited buying intent based on product interest and usage. Now you know that - measuring PQL vs. Activations are the two metrics to measure in unison.
2. BURN MULTIPLES: Operators must balance growth and efficiency in this new SaaS environment. So it's time to brush up on those efficiency metrics in this 2 part post covering Burn Multiple and Sales Efficiency metrics. A Burn Multiple measures how much a startup is burning to generate each incremental dollar of ARR. The higher the Burn Multiple, the more the startup is burning to achieve each unit of growth. Here is how to calculate this metric, and here is an example.
3. VENTURE: Uh-oh. The Carta State of Private Markets report is out for Q2 2023, and 20% of all the VC deals were down rounds. But on the upside, venture overall is up 26% from the last Q due to the number of later stage deals (B Onwards) - but we're still down 58% year on year.
4. CAPITAL: This is a great deep dive on the state of fundraising for H2 2023 that covers all things early stage (Series B and prior) from Peter Specht of Creandum Partner. Volume is way down, especially in the Series A and B Space; AI companies are the dominant outliers of rounds, growth expectations, and burn expectations.
5. PRICING: This is an excellent report from Vendr: The SaaS Trends Report for Q2 2023 (b2b only). You can compare quarters from Q1 2020 to now, and a remarkable drop off in ACV happened last Q. It may be buyers prioritizing efficiency (I know that's certainly my MO right now) - it could also be an anomaly. I will check in again next Q. It Also has a great chart by SaaS Category and top products by ACV - check out Snowflake, Netsuite, and Salesforce - all with $160k + ACV.
6. MICROSERVICES: Microservices have become the application deployment method du jour for quite some time now due to scalability and agility. But those old-school monolith apps also have value. Case in point - the Amazon Prime Video team recently shifted from microservices to a monolith and reduced costs by 90%. The choice is case by case, though, Microservices can get crazy complex, and Monoliths simplify deployment but often lack scalability. So a blended approach makes sense, where core functions remain monolithic, and other components can go microservices.
7. PRODUCTS: Balancing the needs of existing vs. new customers is a complicated product act to balance, and that push and pull are nicely described in this article with some great analogies and tips on influencing the product roadmap.
8. ONBOARDING (Remote): Fun fact - I've only ever met 3 of my team IRL; everyone else is remote, overseas, and in a different time zone. Successful onboarding is tricky, so check this complete guide to remote employee training. For some solid examples, this is how Zapier do it (and leverages their own product to use automation to do it), and here are some lessons learned from Slack.
9. M&A: Navigating some kind of acquisition process is a relatively unexplored topic in this newsletter, so check this guide to running an M&A process as a Founder from First Round Review.
10. CASE STUDY: Typeform - you have experienced and/or created at least one of their forms and surveys, and they have been around the block for quite some time, especially in PLG terms. Founded in 2012, Typeform reached $70 million ARR in 2021, serving over 125,000 paying customers, and continues to innovate with AI-powered tools and a focus on user experience.
POD OF THE WEEK: A follow-up on #4 (and #3) above - the video presentation version covering raising capital in H2 2023.
1. SaaS METRIC OF THE WEEK: Developer productivity: There are two primary frameworks for measuring developer productivity: DORA (with a free poster!) or the GitLab source. 5 metrics for a four-letter acronym to measure DevOps performance and SPACE - a more holistic framework for productivity. And also, as a little bonus, how to measure DevEx (Developer Experience)
2. ANNUAL DISCOUNT: If, like me, you are part of the great SaaS Ponzi Scheme, it may come as no surprise to you that annual contracts are discounted. But how much? 10% is the median - and the range is tighter than I thought - 6%-14%.
3. FRAMEWORKS: Beyond the above laws, a successful framework can distill complex processes or models to make execution more of a simple recipe. Kinda why OKRs exist. Sarah Tavel has compiled a great list of compelling Frameworks covering: The 10x model, The hierarchy of engagement, Hype cycles, and more!
4. DUE DILIGENCE: As reported last week, Startup formation has significantly declined over the past 3 years. Some of which is VC based. This means that Due Diligence of the VC kind has gotten more complicated and longer. So read this article from Allison Weil Lechnir at Hyde Park Venture Partners for great insight into what VCs expect when deciding to invest. FE International has a similar article but written from an acquisitions lens.
5. CAPITAL: Another follow-up from last week's report on the significant decline in Startup formation over the past 3 years comes with news that Sequoia Capital has downsized two of its recent funds - the crypto fund is down from $585M to $200M. They also halved the ecosystem fund from $900M to $450M. This is likely to provide/return liquidity to their partners - it also looks like Sequoia is going through some non-fund restructuring.
6. MOBILE: 2022 was a negative growth year both in app downloads and mobile consumer spend but in H1 2023, $67.5 billion in consumer spend and 76.8 billion app downloads were measured globally across iOS and Google Play (that's a 5.3% and 3.2% increase respectively), most of the spend was on iOS (5.8% vs. 4.3% on Google Play). TikTok is the major player in consumer spending outside of gaming -31% growth. At the same time, other apps that rely on subscriptions, such as Disney+, YouTube, and Duolingo, also delivered solid growth at 33%, 39%, and 48%, respectively.
7. APPLE-GPT: Get outta the way Siri, expanding on #6 above, to keep their iOS stronghold in terms of Mobile Growth; how might more modern AI fit into the Apple Empire? Take a read of this analysis and report from Bloomberg. Historically, they may be late to the party with these significant technology adoptions - but their execution is where they excel.
8. SALES COMP (PLG): Figuring out the proper sales comp and plan is super tricky for high-growth companies, and it gets even trickier for companies that have PLG + Sales. So check this guide on PLG Comp Plans from the team over at OpenView.
9. FOLLOW-UP: I probably push this too hard on Sales follow-ups and nudges, so I needed to subject myself to this article last week: How often to follow up: Follow-up Frequency to Close Deals Instead of Annoying People. It was great to see "Way more than you think." though 🙂 . There is also this concept of the "Rule of 7," which states that a potential customer needs to see or hear your message seven times before they buy something.
10. CASE STUDY: Z-Scaler is probably got some of the best growth metrics out there, and most people have never heard of them - FYI, they are a cloud security company: $1.5 Billion ARR, 125% NDR, 46% YoY Groth and 45% of revenue is non-US.
POD OF THE WEEK: From Lenny's Newsletter and complimenting #1 this week: How to measure and improve developer productivity from Nicole Forsgren (Microsoft Research, GitHub, Google).
1. SaaS METRIC OF THE WEEK: Attribution - Marketing attribution models help marketers assess the data behind user touch points and conversions to understand the return on Investment and effort. Learn more here on Single-touch attribution models, Multi-touch attribution models, attribution tools, and more to make better data-driven marketing decisions.
2. PRODUCT MARKET FIT: Oof. More than 50% of the time, the lack of Product-Market Fit (PMF) factors into a startup's failure (keep reading this article, though, as it goes through how StartupOS figured their PMF out). AirTree (an early-stage VC) has just published this article taking a look at what metrics VCs like them look at for signs of Product-Market Fit - and also what the red flags are. Also, this article has some great PMF definitions. PMF was called "the only thing that matters" to early-stage startups by Marc Andreessen 12 years ago. Now his team gets a little more nuanced, suggesting focusing on Product-User-Fit as an indicator towards achieving PMF. A similar nuance is also true post-PMF with repeatable-scalable revenue models as a precursor to a repeatable-scalable business model (you know - the one with actual profits).
3. STARTUPS: Whoa - Crunchbase reported a significant decline in Startup formation this week over the past three years ('21-'23) across the US, EU, and Israel. Over this time, the number of new startups in the US is down 85+%! This is likely the triple whammy of Covid, Global Economies, and access to funding.
4. FAILURE: This is a skill. Prove me wrong. Failure also requires a culture of safety and permission to be wrong, Tall Poppy doesn't help. As many organizations look to best practices from the tech industry, one hard lesson is that innovation needs a lot of failure before success, something they often do not configure culturally.
5. ESTIMATION: If you have a services element in your startup, estimating effort, especially in Software projects, is mega hard, and we're all terrible at it. McKinsey found that IT projects are, on average, 45% over budget and 7% over schedule, and the larger a project gets - the worse these stats become. So you should definitely bookmark this series (or share with the person you know who needs the bookmark) - Estimating Software Projects by Jacob Kaplan-Moss (and What to Do when you mess up).
6. API: The latest State of APIs report is out from Postman. Some interesting findings: APIs are viewed as moneymakers (43% said APIs generate over a quarter of company revenue), which means pricing really matters. Also, the two most popular API integrations are Salesforce (not surprised) & WhatsApp (surprised).
7. TRENDS: Here is a report on the latest SaaS trends that backs up my "SaaS is just a big Ponzi Scheme" statement from Productiv. The website is a little funky with its navigation tricks - so here is the PDF version too. A few interesting tidbits to tease you into the click include: Average SaaS spend per employee is ~$10K, and the average department uses 87 SaaS apps.
8. AWS SATELLITES: Amazon is readying to launch a lot of broadband satellites via Blue Origin Rockets, the competitor to Elon Musk's SpaceX, to compete against Elon Musk's Starlink. The sky will get busy as they plan to have over 1000 satellites launched by July 2026.
9. LLMs: I, for one, am at the start of the journey to integrate LLMs into our Product stack, and this is a really well-thought-out (part 1) article/framework for how to think about security concerning LLMs features and how to categorize risks based on different use cases and deployment types (in-house, 3rd party, etc.).
10. CASE STUDY: I did write about Meta's newest app, Threads, last week - but here is a much better breakdown of the fastest-growing app ever (this will be a case study for years on Product Launch), as we compare that launch to the rebranding of Twitter to..........X this week, given Elon's very Succession-like desire for Twitter to become an "everything app" but with AI. Apparently, we don't Tweet anymore; we send Xs?
POD OF THE WEEK: Jason Lemkin's turn this week from SaaStr Europa - The cold, hard truths about SaaS in 2023 (part 1).
1. SaaS METRIC OF THE WEEK: CAC payback (and accounting for the upsell) Often time many of the base metrics (CAC, CAC/LTV, etc.) are in service to VCs and operationally don't tell us enough to make great decisions. This article takes an operator view on CAC Payback that includes (and celebrates) the value of net revenue retention, and here is a very relevant article on the importance of CAC payback in our current Bear/recessive market.
2. CUSTOMER SUCCESS - Quota: this is an expansion of celebrating Customer Success Teams' contribution as NRR and CAC payback referenced in #1 above. In past newsletters, I have referenced AE and SDR metrics and quotas. But what about quota expectations in renewal and cross-sell/upsell within a Customer Success Team? Tomasz Tunguz takes a look based on a report a couple of years back from Gainsight. Most Customer Success Managers can handle between $2-$5M in ARR and between 10-500 accounts (but it varies based on segment/ACMR).
3. SALES OPS: For those lucky enough to be in Scale-Up mode but not in a PLG way. Scaling creates some real teething problems, especially regarding revenue teams and moving beyond the founder being the primary (or only) salesperson. Eventually, a dedicated team will be needed (that doesn't involve the founder), and, in more modern times, Sales Ops operators are needed to help coordinate cross-departmental activities to help a revenue organization hum. Read this Sales Ops primer article from Point Nine Capital on starting all this.
4. PRODUCT: Now matter how much Workshopping and strategy development goes into a product, things sometimes work out differently IRL. First Round Review is back again this week to discuss this topic and have a list of things to avoid when building highly-technical products.
5. SEGEMENTING: I raised the topic of account-level segmentation a few weeks ago, and someone over at Userlist shared this article that they thought would be interesting. It's true - an excellent article outlining best practices for B2B SaaS companies in effectively segmenting accounts versus individual users.
6. BUYERS: Software generally benefits during Economic downturns - the downside is more competitiveness. So take note that (according to Gartner's 2023 Global Software Buying Trends report) almost 70% of SMBs plan to increase their spending on software this year, many to increase productivity (47%), and 42% rank as a top priority. G2 has just launched its 2023 Buyer Behavior Report with slightly different stats: 49% plan to increase budgets, and 86% require a security audit!
7. PLG TRAP: This is a great read (across 3 parts) - starting with Tomasz Tunguz's article a few months back, where he noted that (post-COVID) publicly traded PLG companies were operating about 5–10% less profitable than sales lead counterparts. Part 1 lays out what the "PLG Trap" is. PLG is not a revolutionary silver bullet for many, and the article points to where initial growth strategies and product offerings are no longer sustainable in driving revenue - showing PLG's scale limitations.
8. PLG vs. SLG: According to the Expansion SaaS Benchmarks report (it's a downloadable PDF), PLG businesses lead the pack, but as stated above - SLG can outperform PLG, and according to this article, it's not a "vs." thing - you don't have to choose, both strategies can co-exist.
9. AI MONEY: A look into how the heck AI companies monetize their AI-PLG apps and how revenue models are built (free trials FTW)...and need to be built to ensure a sustainable AI business is being established (the old Revenue vs. Cost optimization challenge). Bonus at the end of the article - CAC Payback is overrated!
10. CASE STUDY: Meta is back in the news lately by launching Threads, a Twitter competitor that was the fastest-growing app ever (beating out this year's ChatGPT!), but Threads also seems to be cooling off in a major way. Despite their current popularity shortcomings, however, the original Facebook app still has a solid moat, and quite unbelievably, it has a higher DAU/MAU ratio than in its early days.
POD OF THE WEEK: Complimenting 7 & 8 above from Stage 2 Capital: How and when to layer Sales into PLG with Tony Granados (DataDog and Airtable).
1. SaaS METRIC OF THE WEEK: Get stuck into the world of lead generation metrics with PPC (Pay-Per-Click) and PPL (Pay-Per-Lead) campaigns, where you can track impressions, clicks, click-through rates, cost-per-click, and conversion rates. PPL is super nuanced but can be super effective in driving quality leads.
2. CONVERTIBLE LOANS: They are a kind of debt until they are not. But Convertible Loans are a quick way to access money quickly via an interested investor. Point Nine Capital describes in detail what is involved in a convertible loan and what to look out for.
3. UN-SCALE: Sometimes, while building a repeatable scaleable business model, some un-scaleable things have to be done. This article highlights three specific non-scalable things sales teams should be doing right now.
4. SECONDARY MARKETS: Pitchbook analyzes that LPs are under performance pressures and a lack of liquidity as cash distributions from VC funds are far from great right now. Check this chart for how different pre-2016 funds are to 2019. This is manifesting itself as secondary stakes in portfolio companies, but it's a buyer's market, so only the best assets are in demand.
5. VALUATIONS: Adding onto this buyers market theme above, we all know by now the shift of value in SaaS from growth to valuing based on profitability. Tomasz Tunguz notes that in public markets, software companies have seen 40-112% increases in valuations over the last few months, but only for the top performers - strong unit economics & margins are vital to seeing this valuation creep. The era of efficient growth is now.
6. PLG: A successful PLG strategy goes beyond just having sexy UIs and "delightful" onboarding experiences. This Substack article highlights the importance of what needs to be under the hood - good data analytics, conducting experiments, and building a community centered around the product.
7. DIFFERENTIATION: Tricky question founders get asked all the time. Standing out in a saturated sea of SaaS is a tricky problem to solve - pro-tip - never do it on price alone. So ask yourself, "Why should someone buy from you?" It requires balancing familiarity and differentiation - read this article to get you thinking on the topic more.
8. A/B Tests: If you're looking for a concise guide on how to run, measure, and react to split test experiments, this bookmark-worthy article is a valuable resource.
9. WEBSITE: I've had this discussion at least four times this two weeks, and Jason Lemkin's blog post on the need for quality Marketing Websites this week wraps #6, #8, and #10 in this week's newsletter nicely together. Yes, your marketing site really does matter.
10. CASE STUDY: This chart got me on this one. It visually shows how finding your Ideal Customer Profile can lead to way more organic growth, word of mouth, and referral vs. Paid, low-quality paid signups: How Visily scaled to 100K signups in 5 steps.
POD OF THE WEEK: Customer Acquisition Strategies with Farzad Rashidi, who discusses how to grow and convert website traffic, get landing pages to rank, what content promotion strategies work best, and more.
1. SaaS METRIC OF THE WEEK: Consumption-based LTV. If you have a consumption-based model, then, like me, you probably have revenue that is not consistent monthly. Variable revenue is now a big thing in SaaS. Check out How to calculate LTV with variable revenue customers from the SaaS CFO (comes with a template!).
2. CUSTOMER SUCCESS MODELS: Like customers, not all CSMs are built the same. And it depends, based on stage and strategy, as to how your CSM teams will evolve…...but they will. Gainsight proposes five basic kinds of CSM and a corollary org chart. But keep in mind, IRL, they all will be different hues. SaaSx has this model. Which one best resonates with you?
3. MVT: Here is another one for your tech dictionaries: MVT or Minimum Viable Testing, which is about creating hypotheses and conducting tests that allow you to predict if a market will appreciate a product before even launching an MVP.
4. BOTTOMS UP: Bottoms-up adoption is hard to crack😉 (learn more about the bottoms-up model here). For example, according to Gergely Orosz, Hashcorp has 4,300 customers, but only ~800 generate 90% of their annual revenue.
5. NOLS FRAMEWORK: Not all decisions are made equally - As a former outdoor instructor and part of the National Outdoor Leadership School's (NOLS) network, I was pretty excited to stumble across this article from another alumnus discussing some of the excellent management frameworks to come out of there. This one focused on group decision-making, outlining six different ways to make decisions in a group.
6. AI: This article from Honeycomb discusses the tough challenges of building LLM-based AI products. Context window limitations, slow performance, prompt injection risks, legal compliance concerns, and the limitations of early access programs are all covered - must read if you have LLMs on your product roadmap.
7. AI INVESTMENT: The race is on for AI Investments. Just look at the astronomical Deals chart in this article from Pitchbook. Q1 2023 says $1.7b invested across 46 deals, with an additional $10.7 B announced (but still needs to be closed).
8. FIRST PRINCIPLE THINKING: Want to be more like old-school Elon (the one without all the SEC/Twitter dramas)? Take a read here on the concept of First Principles Thinking. Not gonna lie, I've re-read it for the 15th time this week, and it is a great way to make my brain hurt. Want more? Fine. Here is a full guide/website. Now that you are an expert on this principle, here is how First Principle Thinking can be applied IRL - in this example, towards a Product Lead Growth business.
9. PRODUCT POSITIONING: It's easy for startups to underestimate the significance of product positioning and marketing in the early stages. This article highlighted the importance of understanding the product, customers, and competitors. It had me at the subheader, "A lot of startups suffer after initial growth because they can't figure out what they are building & for whom."
10. CASE STUDY: Hootsuite migrated from a Sales based to a Product Led strategy with a 6-step process outlined in this article from their head of growth.
POD OF THE WEEK: Complimenting #7 above is a good listen from Bessemer Ventures with Dave Rogenmoser of Jasper discussing mistakes made by building out AI products.
1. SaaS METRIC OF THE WEEK: Start with a Point Nine Capital article on everything you always wanted to know about cohort analysis (but were afraid to ask), and here is a free Cohort Analysis template from the SaaS CFO. GoPractice has a Product-focused article on forecasting key product metrics through cohort analysis, and The Startup looks at this metric from a VC Due Diligence perspective.
2. DUNNING: Bringing this actual term with a weird-ass name back to the newsletter - it's a phrase for involuntary churn (aka bad or failed payments). According to Baremetrics, on average, SaaS and subscription businesses lose around 9% of their MRR due to failed payments. Learn more about a successful dunning (and pre-dunning) process.
3. TRIALS: Are proven funnel methods for a solid go-to-market strategy. Check this article on 9 ways to optimize your SaaS trial, and then note from Tomazs Tunguz how long your customer trial period should be?: TL;DR: Longer trials do not convert customers at greater rates. Two weeks, two months, same results.
4. DEEP TECH: Commercializing scientific research can take a longer horizon than most VCs are comfortable with. Bessemer Venture report on the sector this month and introduce us all to the XB100 - a ranking of the world's top private deep technology companies across AI, Aviation, AgTech, Quantum, and Space.
5. SALES TEAMS: Take a good read of this article from David Sacks on the simple math you can use to set up a sales team. Individual plans, team plans, and expansions/renewals are all considered for a high-growth sales team structure.
6. REFERRALS: Cracking the referral loop is a dream outcome, but making this work is pretty rare. Kyle Poyar has written a guide on how to do it ( a collab with Stefan Bader from Cello, makers of referral software).
7. TRUST: For #6 above to work, people trust people over brands when it comes to trust. Chart Mogul has posted an 'Ultimate' Guide to Using Customer Testimonials to Boost Sales, noting that a generic and insincere endorsement is just as helpful as not using anything. It's also possible to take it further by leveraging those frothiest customers into a referral channel.
8. AI: I find this topic fascinating - Mark Roberge of Stage 2 Capital looks at the hype cycle about AI and asks who could win the go-to-market AI race - Startups vs. Incumbents? Adding fuel to this one with CB Insights AI 100, the 100 most promising AI startups of 2023.
9. VR: Facebook's ambitions for the Metaverse were embarrassingly out shadowed by Apple's announcement of their Vision Pro earlier this month - but my biggest question with all things VR and a big hurdle given the price tag is: Why should I care? Ben Evans explores these same sentiments in this essay, exploring what the heck it is exactly Apple is trying to build.
10. CASE STUDY: Moving upmarket into larger organizations is a standard SaaS growth strategy. Increasing ARPU (Average Revenue Per Customer) is good! But there is a lot to learn and a lot of time, knowledge, and effort required to succeed in this market segment. It's not easy, but it can be done. Here is an excellent guide from Outreach on breaking into deals over $100k ARR.
POD OF THE WEEK: From Lenny's Podcast this week is Melissa Tan (Webflow, Dropbox, Canva) discussing how to build high-performing teams.
1. SaaS METRIC OF THE WEEK: Value metric. Similar to the One Metric That Matters in that a Value Metric may be unique to your business or GTM model, these metrics directly align revenue models to the customer acquisition model. There are two types of value metrics: functional and outcome-based. Learn more here.
2. PRICING: This is an ongoing experiment, and we expect it to evolve forever (FYI, we are all not charging enough). Intercom makes the case that a solid pricing strategy should help shape an entire business model, and here is an excellent article on choosing the most suitable SaaS pricing model.
3. DOCUMENTATION: A few months back, I complained that building a comprehensive and helpful customer Knowledge Base platform is complex. Here is something to consider (it's certainly a helpful article for my mindset): There are stakeholders/purchases of your product who do not respond well to traditional marketing and may actively hate it. These people are like me, and while I may moan about how difficult creating good documentation is, it may be one of the best anti-marketing-marketing tools you have available, Especially if you have an API as part of your product.
4. VENTURE: This is a great Cheat Sheet from Antler - a guide for very early-stage founders on how much they can realistically raise in their first round. Especially if nothing has yet been built.
5. SALES: Insight Partners have their latest edition of the SaaS Sales KPI Report out. A couple of trends: Growth rates overall are normalizing after the 2021 COVID-19 digital push, and it didn't matter on company size - CAC payback is at least 10.5 months across all those surveyed.
6. GROWTH: Fast follow from above covering SaaS Growth Trends in 2023 via ChartMogul. The top quartile of SaaS business (ARR of $1 to $30 million) grew 62.1% in 2022 (vs. 93.4% in 2020), and retention strategies are now viewed as growth strategies. Lots of referencing of the SaaS Benchmarks Report in this one, and this Tweet is reporting that new revenue growth is falling across most enterprise tech companies.
7. CATEGORY CREATION: We all want to be up to the left in one of those fancy-ass Gartner/Forrester Quadrant reports. So watch this presentation on category creation from Neo4 and another version from Gett.
8. TAM: A critical question at the very early stages of startup land is, "What's the market size?" The size potential of this startup is directly proportional to the size of that market. Having a clear understanding of the Total Available Market (TAM), Serviceable Obtainable Market (SOM), and Target Market (TOM) can give all the confidence in the world to answer that question. But y'all really need to get started first with this TAM Masterclass.
9. ICP: Another entry for your Tech Acronym Dictionary. An ideal customer profile (ICP) is a detailed and specific profile of your startup's ideal customer. Being clear about your ideal customer profile (ICP), as it evolves is critical, as it drives everything in the business, including marketing, product, and engineering.
10. CASE STUDY: From Netflix to more modern apps such as Midjourney (via Discord), this is an excellent blog covering how the biggest apps acquired their first 50,000 users. Bonus Fact: It appears as if Midjourney is generating about $200M Annual Revenue.
POD OF THE WEEK: #6 above in Podcast format - SaaS Growth Trends in 2023 from ChartMogul with Christoph Janz (Managing Partner at Point Nine), Daria Danilina (Co-founder, Salesroom), and Peter Walker (Head of Insights at Carta).