1. SaaS METRIC OF THE WEEK: Churn is the metric that will make or break a SaaS business. This article is part one of a two-part series but lists 7 retention strategies that can assist you in retaining as many customers as possible:. Starting with scoring yourself to gauge where the business needs to improve.
2. WEB ANALYTICS: Being more data-driven is an intelligent 2023 move. So read this long-form article on how to be more web-based and data-driven this year (and why that's important).
3. 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.
4. 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.
5. CYBER/API: APIs are big business these days, and the flip side of the rise of the API economy is that it catches the eye of cybercriminals. Based on figures from Salt Security's State of API Security Report, 94% have experienced security problems in production APIs, with a 117% increase in malicious API traffic over the past year. Check here for Trends, and also read on best defense practices.
6. MARKETING: So, how do you measure up in 2023 as a marketing business (that's all we secretly are)? Get started here with the 9 marketing disciplines of great SaaS companies, created by the former CMO of Zendesk and Slack, then complete the Marketing Scorecard Spreadsheet here, scoring each on a 1 to 10 scale. A deeper explainer is in this post.
7. LEAD SCORING (in a PLG world): Lead scoring is a way of assigning numerical values to prospects so sales and marketing teams can optimize their funnels and convert faster - so how does that work in a Product Lead World? This blog has all the answers.
8. LANDING PAGES: See below's Case Study link for the master of landing pages (Zapier had 25k of them). Scrapbook (who are getting very close to taking my money) looked over 100 SaaS landing pages and created a helpful (at least to me) landing page optimization checklist for SaaS.
9. MEETINGS: We all probably attend more meetings than we need to. In the US, there are 55 million of them a day. So check this great episode from Freakonomics on how to have healthier meeting habits or even better (if you are of the Product mindset), "If our meetings were products, no one would buy or renew" so here is How To Product Manage the Sh#t out of your Meetings.
10. CASE STUDY: I love Zapier (and their 25,000 landing pages). Here is how they built up one of the most incredible content marketing machines around.
POD OF THE WEEK: Complimenting #3 above is the SaaS Org Chart Podcast live from SaaStr with David Sacks. (Video version here)
1. SaaS METRIC OF THE WEEK: This week is another collection of metrics - this time from Olga Berezovsky, who runs the Data Analytics Journal newsletter, which digs down into standard SaaS metrics and the preferred Board KPIs to measure, be cautious about (ARPU, CAC, and LTV, Churn), and not to overlook (DAU/MAU, Expansion).
2. PRICING: Over the past decade, software pricing has shifted from per-seat licenses for legacy software to subscriptions with tiered pricing for SaaS. We are now headed into pricing based on actual usage as the primary pricing method (three in five SaaS companies now have consumption pricing deployed). Take a read of OpenView's latest guide to pricing transformations to see how you may need to review pricing for 2023.
3. CUSTOMER SERVICE: Add this to your bookmarks - I've already used a couple of these templates: 25 Customer Service email templates to cut response times.
4. ANNEALING: Crack open your Tech Dictionaries for the first entry of 2023: Market annealing is a company's effort to create a market pliable enough for early go-to-market motions. Often used when a company has a better idea than the market for what the market needs - check the article from a16z here - I would put all of Web3 and Quantum into that bucket.
5. PLG: (for complex products): While PLG is not a fit for many enterprise players yet - there is hope. Companies are starting to apply PLG techniques in totally new settings, such as complex (more enterprise-like)products.
6. QUIT? Sometimes after countless attempts, experiments, pivots, and money burnt, it's time to walk away - hard to do if you are full of grit and determination - but Accelerated has a great blog article this week with a framework on giving up.
7. CONTENT MARKETING: Whole new year, whole new content marketing strategy, right? Get up to date on the latest content marketing trends (via Stats you should know) with this article from Search Engine Journal. Also, be sure to read here on Startup content marketing mistakes and spot quiz hot-shot: How long should a Blog Post be? Hypothetically this long (but also literally not that long as it's a long-ass blog post).
8. MULTIPLES: The Clouded Judgement newsletter took a look at SaaS revenue multiples this week, and here is the news: Overall Public Median now sits at 5.2x - public multiples don't have a direct correlation to private multiples, but they are definitely a signal of the direction private valuations are trending.
9. LAYOFFS: Another big week for layoff announcements - this time from Google and Spotify. This prompted Tomasz Tunguz to look at startup layoffs and how they may differ between B2B & B2C companies. TL;DR - B2C companies suffer more cuts than B2B (likely due to longer-term contracts)
10. CASE STUDY: This is a great deep look under the hood of a startup's journey so far (six years in), covering equity allocation, expenses, product, growth challenges, and wins.
POD OF THE WEEK: We might not know what the future holds for Customer Success, but we're willing to go all-in on "efficiency" becoming the industry's word of 2023. Hear more on the future of Customer Success with Alli Tiscornia, chief customer officer at ChurnZero.
1. SaaS METRIC OF THE WEEK: a16z has the top 16 startup metrics that, from their VC perspective, are the most valuable to measure.
2. GROWTH: Silicon Valley has an obsession with growth. The 40% rule and the Mendoza line are examples of that. Tomasz Tunguz takes a view this week of growth rates and why they matter so much (it relates to the future values of a business and when that is created).
3. 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 2023, 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 needs to be rolled up into the process: DevSecOps being the new port-portmanteau, or is that SecDevOps? - anywhoooo……beyond the DevSecOps article, Heavybit also has a great article discussing cloud security challenges (as apparently, if we extrapolate this out, 88% of SaaS is now sitting on public cloud).
4. EMAIL: In the middle of last year, Mailmodo launched a list of SaaS-specific Email flows and tips across customer flow from cold nurture to Churn prevention. It's a great article, and they are wasting no time this year by launching the State of Email 2023 Report - a 4 chapter report covering myths, benchmarks (SaaS has a higher open rate than average), and top tips for 2023.
5. M&A: As mentioned last week, Crunchbase forecasts that M&A activity in startups could pick up in 2023. Now is an excellent time to understand what's in an acquisition offer via this essential guide covering key terms and common issues.
6. RECESSION: Many of us are forecast to enter a recession in 2023. The good news is that software thrives during recessions because companies do a lot of optimization.
7. MARKETS: JP Morgans's Q1 2023 Guide to the Markets is now out, and they are noting that inflation and interest rates are peaking in the US. This is a good indicator that the slide in SaaS valuations is over - As they are inversely correlated to rising inflation (MRR gets less valuable as inflation increases).
8. PLG: Kyle Pola from OpenView has a roundup of four PLG growth tactics they have been excited about over the last two months that could help you grow faster.
9. MOBILE: Last year, consumers downloaded over 255B mobile apps and spent over $167B on them. In response, brands spent over $336B advertising on mobile platforms. This year, people will spend over 5 hours per day on their mobile devices. This and many more nuggets can be found in Data.ai's (formerly App Annie) State of Mobile report for 2023.
10. CASE STUDY: Grammarly - I'm a big fan, daily active user, and paid subscriber - but most users are on the freemium plan. So how did this product get to $90 million in revenue and last valued at $13 Billion? Here is the short version behind their growth, but here is the deeper case study on SEO, engineering, great content, and an embedded and rewarding product experience.
POD OF THE WEEK: Expanding on #10 above with Yuriy Timen, former Head of Marketing and Growth at Grammarly, discusses the ever-changing world of growth, emerging growth tactics, and how to find your growth engine.
BONUS: The fastest way to deliver the right software is to deliver the wrong software sooner.
1. SaaS METRIC OF THE WEEK: Net Dollar Retention is an essential metric in our new capital-efficient LeanOps world. It measures the revenue generated from expanding into your existing customer base. The SaaS CFO dives into how to calculate this metric (and comes with a free template).
2. FAIL: Here is a massive list of 200+ interviews with operators of both failed and active startups. There are a lot of wins and mistakes to learn from in this list (which is also sortable by Fails and Successes).
3. PRICING: In my last newsletter of 2022, many clicks happened for the podcast about the art and science of pricing from Lenny's Podcast. Is this because many of you have a New Year's resolution (NYR) centered on better pricing? Well, let's get started! Pricing Page Ideas have everything you want in pricing inspiration split out by freemium, one-time payments, consumption-based, and enterprise/premium (no Pinterest required). FYI to those who don't have this on your NYR list, 61% of companies in this survey adjusted pricing last year, which, on average, resulted in a 27% lift in ARR.
4. TECH TRENDS '23 (1 of 2): The 2023 Tech Trends report from CB Insights is out and can be downloaded here (59-page PDF) - if 2022 wasn't weird enough, Ambient health, immortality, menopause, house bots, virtual power plants, and smell-tech all make the list.
5. TECH TRENDS '23 (2 of 2): Fast Company also has its list of '23 trends (gleaned from over 40 domain experts). This one covers generative AI (Yes - we're talking to you, ChatGPT - literally), Web3, Security, the creator economy, and more.
6. M&A: Crunchbase forecasts that M&A activity in startups could pick up in 2023 - rising interest rates and the sudden increase in difficulty raising Venture Capital will pressure many venture-backed startups' short and mid-term sustainability and exit options.
7. JOBS: I predicted the newly announced layoffs from Salesforce in a newsletter post last year, and they, among other established tech companies, have launched many talented job seekers into the market who will be evaluating Early-Stage companies, with many making the leap. First Round Review has 20 top tips for any job seekers who may be considering making a move from Big tech to Startup. It's a very different beast.
8. MOATS: This is one of my favorite topics, as Moats are one of the best ways to provide a competitive advantage for your business, and they come in all kinds of different flavors. Jerry Neumann has an excellent blog post outlining most in his Taxonomy of Moats. Especially relevant in 2023 as Scale Moats are no longer Moat du jour.
9. ADVICE: What would 2022 you want to tell the entrepreneurs of 2023? Bookmark this link as First Round Capital (in a second appearance this week) has a great list of 30 best pieces of advice for entrepreneurs from 2022.
10. CASE STUDY: This one is for all you bootstrappers (or people trying to optimize more with less). It's the story inside Hotjar's bootstrapped PLG strategy that has so far taken them to $50 million+ ARR.
POD OF THE WEEK: From SaaStr to compliment #1 above: Churn is dead. Long live Net Dollar Retention (NDR) with David Kellogg
Welcome to the Benchmark Holiday special! This is a compilation of valuable benchmark data reported from across the webs in 2022 for you to put to good use.
1. SKOK: David Skok is a legend in the SaaS world, and I have written about his work extensively in the past, as well as convincing him to speak at an event. His former reports are now run in partnership with KeyBanc Capital Markets (KBCM), and the 2022 version is here - excellent benchmarks for any SaaS business.
2. EXPANSION 1. Acquiring customers is not enough for a SaaS company's sustained long-term success. Expansion strategies are pragmatic practices that any good SaaS company needs to grasp, as 46% of new ARR bookings are attributable to cross-sell/up-sell activities. Larger companies use this strategy more heavily than their smaller counterparts (2x more). This is likely due to relying on something other than pure acquisition strategies as the business matures.
3. EXPANSION 2: Expansion is such a big deal that OpenView Partners have gone to town to benchmark this metric with an extensive Expansion SaaS Benchmarks report in 2020 (downloadable PDF). Product Led Growth businesses lead the pack!
4. RETENTION: To complement #2 and #3 above, retention is deeply related to expansion regarding sustainable growth. Here is what reasonable retention goals should be benchmarked against (another downloadable PDF report) and how to strategically optimize for this metric. Churn still needs to be fixed overall. The YoY trend of a dollar churn is back to 12.6% this year. Similar to pre-pandemic levels.
5. PRODUCT LED GROWTH: As mentioned in #3 above (and from me from time to time in this newsletter), Product Led Growth (PLG) businesses lead the pack regarding expansion. PLG companies also deserve their own benchmark reports - so I got you covered with this one where you can benchmark 450+ PLG companies (it was only 250 a year ago - PLG is on a burn!).
6. CAC: This one is always nuanced. The report always breaks CAC down into blended, new, and up-sell/expansion so you can see the efficacy of spend to return. The median blended CAC comes in precisely the same as last year - $1.20 for every $1 of revenue realized. FYI it was $1.10 in 2019 and ($1.32) in 2020. New Customer CAC is up significantly YoY and at $1.78: 2021 ($1.67), 2020 ( $1.60), and 2019 ($1.34). This signals two things: 1. SaaS is increasingly competitive, and 2. CAC Payback is getting way longer. Upsell/cross-sell (see below) is still cheap at $0.61 per $1 of ARR earned (and down from $0.63 last year).
7. GROWTH: The 2021 growth levels were back up to a healthier 31% as the COVID disruptions settled (2020 was 20%!). This year is an ARR growth of 31%, and forecasts are always a few points more optimistic - still at the same 36% seen in 2021 and 2019. BONUS - you can see how that 31% is split by industry categories here.
8. MARKETING AND SALES: KeyBanc noted marketing spend dropped last year to 31% of ARR (down from 36%). KeyBanc correlated Sales and Marketing Spend to Growth Rates. In contrast, OpenView separated spend based on stage (33% average across the board). Both methods are interesting benchmarks. Sales employees range from 10-20% of all staff across the revenue stage - but that percentage increases at the higher end of town.
9. WEB VITALS: Optimizing a User Experience is key to the long-term success of any service or product. Google is all over this and launched Web Vitals a few years back, a program offering developers user experience guidance. It's benchmarking very Google-based metrics: loading, interactivity, and visual stability.
10. SPEND: The average SaaS company burns $52m to get to $100m in ARR, which takes under 9 years (8.7 to be exact). Figuring out how to optimize marketing spend and growth rate is crucial. This study doesn't show the benchmarks marketers want to hear: Results vary. While the median sales and marketing spend has dropped this year to 31% of revenue (down from 36%), to ramp up ARR growth, you gotta blow a lot more dough relative to revenue: the percentage of revenue in isn't much more than percentage growth spend out. Across all companies, Engineering is consistently the largest department, Customer Success and Product at about 10%, and Marketing at only 7%. This slide also has median headcount by stage - which is a great metric to track.
This will be my last post of 2022, so it's a forward look at the Holiday season, 2023, planning, and beyond. Have a great holiday season, and thanks for your continued readership. See y'all in 2022.
1. SaaS METRIC OF THE WEEK: Here is a good list of 10 growth metrics to track for 2023. No surprises here: Churn, LTV, CAC, CAC Payback (see #10 below), but the Quick Ratio is good, as is Customer Health Score. One that needs to be added to that list, though, and referenced in a newsletter I'm unable to link here from Matt Cameron (he has no web version of his newsletter) is Velocity! Here is an older slide from Matt's SaaStr presentation explaining that formula more, or watch the presentation in its entirety.
2. GROWTH: Gartner predicts an acceleration of business software spend in 2023, up to 11.8% growth from 9.8% in 2022 - monetarily, that is $100B, and more importantly, SaaS spend in the enterprise is forecast to grow 17% to $195 Billion. Cloud spending overall is expected to grow 22.1% in 2022 (from 18.4% in 2021)
3. eBOOKS: Holiday season is here, and who doesn't want to tuck into ebooks covering marketing, sales, development, web3, etc. - there are over 600+ free here. Also, take a looksie at these 28 Free AI, Machine learning, Data Science, and Python eBooks - ready for download directly to the device of your choice now.
4. FINANCIAL FORECAST: Your 2023 new financial year is just around the corner! Now is always the second best time to get started on getting started (the first being two months ago). This is an excellent article with a complimentary excel download from The SaaS CFO - it's a SaaS Financial Plan for Startups (and also works for most SMBs). It also comes with a handy complimentary video tutorial for the worksheet.
5. OPERATIONAL PLAN: Because your new strategic year is just around the corner and now is the second best time to get started getting started, Dave Kellogg has a great How-to guide on presenting your fantastic new operating plan to your board.
6. BUDGET: This could be a whole newsletter by itself: How much do you plan on spending on your 2023 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 2023 will be the year of LeanOps - here is how to manage burn and extend your runway into 2024 from Capchase.
7. UNCERTAINTY: Will '23 bring a double-dip recession, extra inflation, and a new pandemic? We are in uncertain times, so when considering #4, #5, and #6 above, read this article from First Round Capital covering 6 tactics for rethinking planning in uncertain times.
8. COMPENSATION: Bookmark this free library of 20 sales compensation plans that can let you scenario plan into 2023. This is seriously next-level content marketing that has a significant amount of value.
9. SAASOPS: How many SaaS apps are too many in an Enterprise organization? According to the State of SaaSOps Report from BetterCloud, organizations are currently using 130 apps on average! Organizations are still using more SaaS apps than ever, but growth has slowed slightly in '21 and '22. But the net gain of SaaS apps used is still up 18% this year, with more to come in 2023, according to Gartner (see #2 above).
10. CASE STUDY: Speaking of uncertainty (see #7). Salesforce, the world's largest SaaS company, broke with established practice for its Q3 reporting and said it would not provide financial guidance for next year as "they just didn't know.". What is even more profound than that statement is in their underlying metrics: With some back-of-the-napkin/Twitter math, they currently have a CAC Payback period of 155 months (yeah - just short of 13 years)!!!! Certainly a case study for many sales and marketing layoffs in the new year.
POD OF THE WEEK: One of the best growth levers you can work on for 2023 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: Ever heard of the Mendoza line? Well, it's a rule of thumb metric and a numerical that can help SaaS Companies answer that incredibly frequent question, "How fast do I need to be growing to be attractive to a venture investor?
2. LAW: Not the litigious kind - from CBInsights is a 67-page report covering the 11 laws driving success in Tech, such as Amazon's 2-pizza rule, the 80/20 principle, and more.
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. IDEAS: Here is another framework for managing them - I found this a beneficial article with a template that is now on my wall! An HD version of it is here. A little bonus is a compilation of mental models that entrepreneurs and investors leverage to develop new startup ideas & venture theses from the same author.
5. CUSTOMER OPERATING SYSTEM: What exactly is the difference between Customer Success and Customer Support? Get started here to understand the nuances. They are both parts of the same customer journey spectrum. 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).
6. ENGINEER vs. ENTREPRENEUR: I love this article as it manifests the battle that lives in my head: Engineers love to get it right, and Entrepreneurs love to get it done. Such a simple statement that materializes in so many ways.
7. REVERSE TRIALS: Crack open up your tech dictionaries to add in this term. Reverse Trials are a play on freemium, where new users start with a time-limited trial of all your paid features. At the end of the trial, they can either buy or downgrade to an entirely free tier. This article also explains how Airtable does this well. The benefit here is that, emotionally, the users experience loss aversion, where the pain of losing something is twice as powerful of a motivator as the pleasure of gaining.
8. PRODUCT vs. SALES: Notion has the article we all want to be ask as we strategically head into 2023: Should my Go-To-Markey strategy be Product-Led or Sales-Led?
9. GROWTH: This is a pretty good summary of the year that was 2022 in SaaS from Capchase's recent Pulse of SaaS report - In 2022, bootstrapped SaaS companies are doing better than those that are VC-backed. Mainly as they lead the pack in terms of capital efficiency/LeanOps.
10. CASE STUDY: ChatGPT - I'm guessing you have probably heard a thing or two about ChatGPT this week - if not, it's a conversational AI model that can interact with users in a more human-like way, and it's a significant breakthrough that's demonstrating how things are about to change with the way we interact, do things and experience things digitally. Travis Jamison has a great long-form article breaking down many use cases ChatGPT and its future offspring will change (including poetry).
POD OF THE WEEK: RevOps Squared chats about all things SaaS metrics, focusing specifically on how to use metrics to inform your decision-making. Listen here.
Last month I reviewed the KeyBanc Capital Markets 13th annual SaaS survey for Private Markets (you can download it here) and offered a warning as the number of respondents has dropped significantly: Now 110 vs. 424 in 2019.
Another player in town, Openview, is also benchmarking privately held SaaS businesses with a PLG Lens. Their 2022 SaaS Benchmarks Report has a much broader sample size and combines over 3,000 respondents' results (and 660 this year) which make up this week's Top 10 (and can be downloaded here as a PDF); it's a much different story than in 2021 - but we still take it to 11:
1. GROSS RETENTION: OpenView's SaaS survey found that early-stage companies ($2.5m to $10m ARR) are seeing gross retention decrease relative to 2021. Those earlier-stage businesses should be focused on Churn as a primary KPI. PLG lead companies see best-in-class retention (128%) and have highly efficient growth engines (63% Rule of 40).
2. BURN: 2022 values profitability over growth rate, and most companies are cutting burn, regardless of cash runway or Growth Rate (see why with #3 below). LeanOps is the whiplash to what is happening both in the VC world and Public Market - also reflected by the rapid handbrake on minted Unicorns from Q4 '21 to Q3 '22 (from 139 to 24).
3. RULE OF 40: In 2021, OpenView observed that "investors have forgotten all about the Rule of 40." This year's response: the Rule of 40 "back from the dead." Cash is no longer cheap, and multiples have plummeted. Efficient Groth Engines and LeanOps practices are essential - PLG lead companies also stand out in this category with 63% tracking with the Rule of 40).
4. FINOPS: This slide could be a newsletter all in itself. A very meaty section that breaks down core FINOPS metrics by stage - headcount, funding amount, ARR, etc. This shows what it takes to raise funding in today's environment (Bold numbers are median performance).
5. CAC PAYBACK: According to KeyBancs report, New customers, on average, take 2 years and 2 months to become profitable. OpenView has a different take, and the answer depends on the market. Companies selling to consumers/SMB segment have shorter buying cycles/lower CACs than those selling to enterprise customers, and PLG outperform their peers (again).
6. NET DOLLAR RETENTION: This metric can be paired with #5 above. Being strong in both these metrics allows you to fuel high growth and stay efficient. Growing and staying efficient is only possible if you're strong in these two metrics. Great NDR is 116% in SMB and 125% in Enterprise.
7. REVERSE TRIALS: This is a crucial lever with those of us at PLG-Land: Reverse Trials allow users to try premium features during the trial. Companies are maximizing the upfront value for users and increasing the likelihood they will convert through usage paywalls.
8. PRICING: Just like Software Products - pricing is never done. 61% of the companies surveyed adjusted pricing in the last year, and, on average, this resulted in a 27% lift in ARR. Side note in that slide: 55% of respondents have at least tested usage-based pricing.
9. SALES AND MARKETING: This is similar to KeyBanc, who noted marketing spend has dropped this year to 31% of ARR (down from 36%) KeyBanc correlates Sales and Marketing Spend to Growth Rates, whereas OpenView separate spend based on stage (33% average across the board though). Both methods are interesting benchmarks. Sales employees range from 10-20% of all staff across the revenue stage - but that percentage increases at the higher end of town.
10, EMPLOYEE DISTRIBUTION: Across all companies, Engineering is consistently the largest department, Customer Success and Product at about 10%, and Marketing at only 7%. This slide also has median headcount by stage - which is a great metric to track.
11. REPRESENTATION: Or Women-Led Growth: Less than one-third of leadership roles are filled by women at most early-stage companies. Here is the kicker: EVERY BUSINESS with at least one-third of the team women has a greater growth rate than those that don't, regardless of stage.
1. SaaS METRIC OF THE WEEK: The nag Metric, I'm bringing this one out of the archives, as I have been nagged a bit lately: A call to action within a site or customer journey is kinda like a parent trying to get their kid to clean up their mess. It gets a bit naggy after a while and gets mentally filtered out. This can impact your brand/NPS or irritate people into churn. The Nag Score - outlined in detail here, is an attempt to quantify this.
2. OKRs: Pioneered by Google a couple of decades back, OKRs have emerged as a part of the suite of modern product and company best practices (that include Lean, Agile, and Jobs-To-Be-Done frameworks). Tability has a (complete!) 2022 guide on the OKR Framework.
3. DESIGN: Bringing good design into different elements of a business is nothing new to most modern businesses. But there are specialized branches of design constantly emerging. Growth Design is one of my new favorites - merging typical HCD/Empathy Design but adding in the pragmatism of designing the jobs that need to be done by your customers.
4. COGS: Not every listing I write has to be exciting. Important is just as important. SaaS P&Ls are structured in specific ways, and defining what goes into the cost of goods sold (COGS) section is important. So take a good read of what the SaaSCFO recommends to include. An eye opener for me - where do you record your Support, Professional Services, and Customer Success expenses?
5. FUNDING: Startups go through a variety of fundraising lifecycles. This article is a guide to understanding startup funding/investing for all of you at the early stage of startup life.
6. VALUE PROPOSITION: We have all been asked endless times about our company's Value Proposition. In this article, Bart Krawczyk argues that solving a painful problem for customers is hardly enough: You also have to win the market category you play in. There are also some excellent value prop examples in this article.
7. PROBLEMS: The complimentary how-to guide for #6 above: 7 Principles For Writing Great Problem Statements.
8. CUSTOMER SUCCESS: ChurnZero has a great new report (surveying 1,037 customer success pros) - the 2022 Customer Success Leadership Study: 50% of CS teams own renewals and 41% own expansion.
9. VENTURE: Ouch: Pitchbook's 2022 Global Fund Performance Report is out, showing that the IRR (internal rate of return) for venture capital funds fell to -2.3% in Q2 2022. This is the first time since 2016 that the returns have dipped below zero. This a signal that the era of venture capital outperforming other private market asset classes is likely coming to an end. (Excel version of Data here).
10. CASE STUDY: Figma famously wandered around in the wilderness in the early days until they found Product Market Fit. First Round Capital has broken Figmas' growth down (from stealth to enterprise) into 5 phases. This article dives deeper into Figma's Early Days and how patience & discipline fostered a killer product and PLG motion.
POD OF THE WEEK: From Stage2 Capital: How and when to layer Sales into PLG with Tony Granados (DataDog and Airtable).
SaaS Nerd Alert: Yeeeeeeeee! It's my fav post of the year, and the most challenging part is choosing only 10 highlights, so, as usual, I'm taking it to 11. KeyBanc Capital Markets (KBCM) are back again for their (13th) annual SaaS survey for Private Markets (download the PDF here). This report includes responses from senior executives across SaaS companies at various stages, and we are seeing a rebound in growth as companies recover from the economic disruptions caused by COVID-19. Why should you care? This is data from Private Companies - of which about 20% are less than $5M in ARR, and about 40% are less than $10M - sound like you?
WORD OF CAUTION: The number of respondents has dropped significantly this year: 110 vs. 354 last year and 424 in 2019 (the 2020 count is confusing as they had to run it twice - a COVID thing).
1. PRICING: Only 41% of SaaS Companies priced by seat. (You may have seen my "occasional" posts on Consumption-Based pricing from time to time in this newsletter). An interesting note is that this survey now includes varying segments beyond B2B and B2C - such as B2D (D for Developers) and API companies. Which reflects the evolving tech/SaaS landscape.
2. VALUATIONS: This is a new metric measured starting from last year - The median enterprise value of companies surveyed last year was 8.4x ARR (at the time of the liquidity event), which had quite a bit of variation and a strong relationship between valuations and top-line growth. This year, shockingly to no one, valuations are down to 6.1x ARR (based on their most recent round).
3. SALES: The primary mode of Sales efforts remains Field Sales based. 59% for companies with more than $5 ARR and 73% for companies under $5m ARR. Inside Sales took the second largest chunk (22% and 14% respectively). But the complimentary slide to this is the distribution of method by deal size anything greater than $250k is all "Field Sales" - but assume a lot here is now Zoom-led.
4. MARKETING SPEND: Figuring out how to optimize marketing spend and growth rate is a crucial question, and this study doesn't show the benchmarks marketers want to hear: Results vary. While the median sales and marketing spend has dropped this year to 31% of revenue (down from 36%), to ramp up ARR growth, you gotta blow a lot more dough relative to revenue: the percentage of revenue in isn't much more than percentage growth spend out.
5. GROWTH: The 2021 growth levels were back up to a healthier 31% as the COVID disruptions settled (2020 was 20%!). This year is an ARR growth of 31%, and forecasts are always a few points more optimistic - still at the same 36% seen in 2021 and 2019. BONUS - you can see how that 31% is split by industry categories here.
6. CAC: This one is always nuanced. The report always breaks CAC down into blended, new, and up-sell/expansion so you can see the efficacy of spend to return. The median blended CAC comes in exactly the same as last year - $1.20 for every $1 of revenue realized. FYI it was $1.10 in 2019 and ($1.32) in 2020. New Customer CAC is up significantly YoY and at $1.78: 2021 ($1.67), 2020 ( $1.60), and 2019 ($1.34). This signals two things: 1. SaaS is increasingly competitive, and 2. CAC Payback is getting way longer. Upsell/cross-sell (see below) is still cheap at $0.61 per $1 of ARR earned (and down from $0.63 last year).
7. CAC PAYBACK: CAC is also a measure of cash profitability per customer - and this negative trough is long, so take a seat! New 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.
8. DISCOUNTS: If you are part of the great SaaS Ponzi Scheme like me, it may be no surprise that annual+ contracts are discounted. But how much? 8% is the median annually, and 10% on multi-year.
9. CROSS SELL/UPSELL: This one is interesting as it is way higher than the 36% last year: 46% of new ARR bookings are attributable to cross-sell/up-sell activities. Larger companies use this strategy more heavily than their smaller counterparts (2x more). This is likely due to not relying so heavily on acquisition as the business matures.
10. CHURN: Yeah - this one is a big problem, folks. The report for last year recognizes a YoY trend of a dollar churn decrease back to 12.6% (same as 2020). Which is also similar to 2019 levels (12.5%). This year: 14%. Luckily cross-sell upsell offsets this somewhat. Note that NDR is in the middle - 109%.
11. ARR per FTE: Capital Efficiency is a new metric we all want to track in these LeanOps times. This number is $143K per FTE. With public companies, it's double that, according to data from Maritech.
1. SaaS METRIC OF THE WEEK: Not just one - but 32: It's the motherlode from the Chargebee Blog: 32 SaaS KPIs Every Company Should Track, awesomely split across 5 different divisions: Marketing, Sales KPIs, Finance KPIs, Revenue, and Customer Success KPIs.
2. MARKETING: SaaS Marketing is a practice covering many different disciplines and specialties. Which one should a startup hire first?
3. 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.
4. CLOUD: Battery Ventures' "State of the OpenCloud 2022" report is out this month. Revenue multiples are down across the board - The median forward multiple for SaaS companies has fallen from about 16x to roughly 6x today and was at its max (44.1x) a mere 11 months ago, and the market is shifting from "growth at all cost" to "measured growth" - growth + profit. It now needs to be both.
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. With Individual plans, team plans, and expansions/renewals are all considered for a high-growth sales team structure.
6. MOATS: As mentioned in past posts, Moats are one of the best ways to provide a competitive advantage for your business, and moats come in all kinds of different flavors (such as speed, Brand, or growth). But here is a great one that conceptually covers b2b and b2c: EMOTION!. Regarding B2B, this post lists some popular and effective ways companies create moats for their products.
7. LAYOFFS: Twitter, Lyft, Stripe, and Meta all joined the layoff lists this week - see htpps://layoff.fyi for a comprehensive list so far. "Lean Big Tech' or "Lean Ops" is probably a phrase we are going to hear a lot of in the upcoming months (and I totally coined both). Stretching Capital is the main reason why, according to Jason Lemkin.
8. HIRING: The ying to the yang above. The new opportunity for early-stage startups is to scoop up laid-off Tech workers - something unheard of a couple of years ago. It's important to note that, as of now, unemployment in the tech industry is still crazy low: 2.1%.
9. INFLATION: Who's increasing prices this year due to inflation and/or FX rates? Tomasz Tunguz notes in this week's newsletter that 8% annual inflation for a startup means losing a month of runway yearly! That is some perspective that hurts.
10. CASE STUDY: There is nothing better than a good case study covering products I love to use. Grammarly is still privately held (and last valued at $13 Billion) with 30 million daily average users (of which I am for-sure one) - they have been profitable since day 1 as they are one of the ultimate PLG businesses that merge B2C and B2B with a TAM of.........pretty much everyone with a computer. An excellent case study on SEO, engineering, great content, and an embedded and rewarding product experience.
POD OF THE WEEK: Speaking of SEO (in 10 above), here is how to grow your B2B SaaS with SEO with Jeremiah Smith, who operates a SaaS-focused SEO and Content Marketing agency.
1. SaaS METRIC OF THE WEEK: Usage-based pricing and MRR/ARR models are often mentally hard 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.
2. SCALE: This is a must-download. Mark Roberge, the founder of Stage 2 Capital and member of the founding team at HubSpot, has launched this great playbook for scaling. In this detailed book, Mark has defined different stages of scale, established quantifiable measures for each, structured the sequence and signals of when to move from one stage to the next, and explored the optimal go-to-market design of each one.
3. CYBER: Gartner's new report forecasts that enterprises will spend $188.3B on cybersecurity products in 2023 - most of that will be my annual Cyber policy :-) - and growing to $262B by 2026.
4. CHURN: In this post, Lenny Rachitsky asks, "What is a good monthly churn for a SaaS business?". Zero is the obviously 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, and less than 1.5% is GREAT. For B2B Enterprise: 1% - 2% is GOOD, less than 0.5% is GREAT.
5. AWS MARKETPLACE: I just listed our B2B SaaS on the AWS Marketplace this week - it's hard. So to celebrate, here is a teardown from Protocol into the AWS Marketplace, where we startups can sell our cloud services to enterprise customers (and AWS transacted over $1 billion last year).
6. FINTECH: From Coatue is a report on all things fintech for 2022 - great for any of you in the FinTech space looking for solid data sources. It also highlights two impressive things: 1) FinTech is the most dominant cloud category across the tech ecosystem (slide 6) and likely because Financial Services has the largest gross profit pool across every significant sector (Slide 8).
7. BIG TECH AND CLOUD: Lots of high drama and intrigue in the Big Tech scene these last couple of weeks, and MASSIVE amounts of value wiped out in Stock Market sell-offs, Big Crypto is technically less volatile. These businesses are really being tested - but FYI - the Big Cloud ones are still getting bigger - public cloud has a $1.5T run rate.
8. SALES EFFICIENCY: Tomasz Tunguz is coming through with a banger of a post this week and taking a deep dive into Sales Efficiency both through and post the COVID era. Since 2016, on average, in Public SaaS, sales efficiency has dropped from 52% to 47% (a drop of about 10%), and he notes that it ain't COVID - it's competition that's creating the slide.
9. MONETIZATION: What are the best ways to monetize based on market segment? For the SMB market (100-200 employees), self-serve is critical. Product-led sales are optimal in the mid-market (200-1000 employees). At the enterprise level (1000+ employees), sales-led reigns supreme. But a bigger question to ask (and Jason Lemkin asks it): How Cheap a Product Can You Have And Still Have Salespeople?
10. CASE STUDY: A read for your Coffee/Pomodoro break - it's about hyperlinks. We are breaking out the way-back time machine for this one (all the way back to 1993). This newsletter is jam-packed with hyperlinks. So here is a question that is not necessarily helpful for your business but one I have yet to consider: Why are hyperlinks blue?
POD OF THE WEEK: From Sachin Monga, a great discussion on the evolution and origins of the blog platform Substack.
1. SaaS METRIC OF THE WEEK: Consumption-based LTV. If you are consumption-based - you probably have revenue that is not entirely consistent. Variable revenue is now a big thing in SaaS. Check out How to calculate LTV with variable revenue customers from the SaaS CFO (with a template!)
2. 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.
3. CUSTOMER SERVICE: In this current age of the customer, enhanced by COVID, SaaSx makes the argument that in the SaaS world, Customer Success is actually the product. Want to start building out that product? Check the HubSpot guide on getting started with your Customer team.
4. VERTICAL SAAS: A lot of Big Tech is under threat from 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 and then look at how these vertical SaaS companies are taking market share from those cloud giants.
5. SALES: Looking to establish your first (non-PLG) 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 whether startups are still hiring remote workers (yes, remote hires now represent 62% of all new contracts). And then, read this post from Jason Lemkin on how to construct a framework for the first SaaS sales compensation plans.
6. INFLATION: Not sure if you have noticed, the cost to serve in SaaS is getting spendy, and according to this SaaStr survey, over 50% of respondents are planning on increasing their SaaS pricing in 2023 - are you? Jason Lemkin dives deeper into this and adds some words of caution on raising your prices too much.
7. DATA PRIVACY: Transformation is underway with Data Privacy, and personalization has historically been a big part of marketing efforts via tracking Cookies). Web3 is making changes to better privacy, and Third Party Cookies are now a thing of the past. So what does that mean for personalization? Venturebeat dives into this topic and also looks at how marketing, in general, can be a bit more private.
8. UNEMPLOYMENT: The news coming out of big tech regarding layoffs and hiring freezes may be headwinds for everyone else, but unemployment in the tech industry is still crazy low: 2.1%.
9. DECENTRALIZATION: With the Web3 hype going mainstream, the movement from "big-tech" Web 2.0 to a decentralized Web3 can seem a little bombastic. So here are some specific models and principles of decentralization that are a little more palatable.
10. CASE STUDY: This is from those of you just getting started: Cliently, a sales engagement SaaS website, grew their web traffic from 0 traffic to 75k monthly in just 8 months, netting $7k new monthly recurring and 700 signups every month. Here is how they did it.
POD OF THE WEEK: A great podcast on Benchmark Capital's history and founding story.
1. SaaS METRIC OF THE WEEK: Churn. So, according to CatchJS, we're all calculating churn rates wrong. But if you love Statistics, the article is worth reading. It even gives some Python code to perform the more complicated probability-based equation they recommend. Is this not how you want to start your new year? Then check out this tool (as a handy Google Sheet) from Newfund as a way 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).
2. BILLING AND PRICING: What are your pricing plans for 2023? Check this joint report from SaaS Optics and Chargify on B2B SaaS Trends in Billing & Financial Operations to benchmark yourself. According to this report, Forty-Two percent of us opt for a sales-negotiated pricing model. Additionally, 37% are planning to expand into new pricing models. A variable pricing model (such as consumption-based pricing) is the most desired addition. ARR remains the top priority for most SaaS businesses.
3. PRODUCT: Now matter how much Workshopping and strategy development go into a Product, things don't always work out 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.
4. DIGITAL TRANSFORMATION: I learned this during the GFC recession: Inflation and other economic factors pressure below-the-line business costs (Capex and Opex). This, in turn, triggers a bunch of Technology based transformations within a company to optimize productivity and lower operational costs. According to this report, 70% of CFOs agree and are ready for aggressive tech investments. Plenty of B2B SaaS opportunities are in store.
5. VENTURE 1 (CAPITAL): In the US, California-based Startups remain the poster child for VC investment according to Pitchbook's Q3 report by raising 3x more than New York-based startups, who were in second place on a State by State measure. Meanwhile, on the other side of the pond, European VC funding dropped 43% for Q3 22 compared to Q3 21, and the UK is down 60% from last quarter.
6. VENTURE 2 (DEBT): Venture debt levels halved in Q3 22 ($4.7B) compared to Q2 ($9.7B) - rising interest rates are likely to blame. In addition, structured financing deals have become common with restrictive terms that favor investors and structured debt (convertible, warrants, preferred equity financing). Investor-friendly deals like this are preferred to the other dreaded option - raising down rounds. There is so much to learn in these new down markets.
7. FINTECH CLOUD: I need to yell this one: NINE OUT OF TEN BANKS STILL USE FRIGGIN MAINFRAMES! So, because it's not 1982, check out what Google and Amazon are doing to get this FinTech business via their Mainframe migration tools called Dual Run and AWS Mainframe Modernization. Public Cloud, across the board, is aggressively coming after businesses' budgets.
8. GREEN vs. BLUE: Apple is a business who have done something impressive: They have locked in a new generation of users using peer pressure and color. Thanks to the use of a gross green color and mainly because of the group vibe of Apple Messenger - keeping things strictly Blue-bubbled in peer-based groups has led to iPhone ownership among US Teens hitting almost 90%, more than double since 2012.
9. CUSTOMER: There was an interesting discussion in one of my Slack groups a few weeks back about customer surveys and how customers know the past best and not necessarily the future. It got me thinking way more than most comments, and this article validated why earlier this week. I'm always listening to customers, what they talk about, the problems in their business, how they talk, etc. So when it comes to Product, it's important to be user-focused and not necessarily user-led.
10. CASE STUDY: The study of a SaaS CEO. This one is a rollercoaster of totally relatable anguish and smiles. From SaaStr: 5 Very Good Days, and 5 Pretty Bad Days, as a SaaS CEO.
POD OF THE WEEK: If it ain't blue, I can't be friends with you". This is the podcast version of #8 above - about how iPhone users judge other people with green text bubbles. A great podcast about how Technology forces us to make specific choices.
1. SaaS METRIC OF THE WEEK: NPS: We all like to be liked - Net Promoter Score is a way to quantify that for your product. This White Paper from Ask Nicely reviews NPS (among other common customer experience metrics) and explains how to measure and calculate NPS. See this link for some methods to improve the NPS of a SaaS product. Neil Patel then gets into a 3 step program of how to leverage NPS for your business.
2. COOKIES ARE DEAD: Not the chocolate chip kind of Cookies. Love them or hate them, the reality is that browser cookies have headed the way of the Dodo, so conversion tracking via cookies being phased out creates a new attribution problem to solve. However, conversion modeling is a way forward, so if attribution is a necessary part of your business or your channel/partner's Business, read this article from Google on why conversion modeling will be crucial in a world without cookies.
3. IP: If you haven't noticed Facebook's general MO, many startups in the software space are vulnerable to their competitors producing copycat technologies. Take a read of this interview from Nico Hodel of Start It Up NYC on how to better protect your Tech IP and from Entrepreneur magazine - 4 IP Mistakes startups make and how to avoid them.
4. ANNUAL DISCOUNT: If you are part of the great SaaS Ponzi Scheme like me, it may be no surprise that annual contracts are discounted. But how much? 10% is the median - and the range is tighter than I thought - 6%-14%.
5. ENTERPRISE: Moving upmarket into larger organizations is a standard SaaS growth strategy. Increasing ARPU (Average Revenue Per Customer) is good! But it's hard to pull this move off as a tiny startup selling to large organizations. So here are 10 tips for selling to big companies as a little guy.
6. DEMO: This one is very interesting to me - as the path to Demo is precisely the primary call to action my website is designed for. I assume it is the same for many B2B people, so..... "Should Your Website Drive Prospects to a Demo?" Read the article to determine if this is a problem at your startup.
7. VIDEO: Complimenting above, nailing introductory and Demo videos is a bit of an art form. Don't know 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).
8. COMPUTERS: Here is some interesting data; according to Canalys, PC shipments plunged by 18% in Q3. FYI - it's back to school Quarter in the Northern Hemisphere - this drop in demand is the fastest fall in over two decades. The only bright spot is good old Apple - which saw a 1.7% increase and is the only brand not losing ground.
9. PRICING: This is always hard to nail, and we are not charging enough. Still, this highly bookmarkable 4-step pricing exercise from First Round Review is a great framework to put an objective product lens on pricing - it's something you can use for a pricing workshop with your team.
10. CASE STUDY: HubSpot's turn because I use them - this is another SaaS company that has managed to cross $1b in ARR (now at $1.7B and growing at about 41% YoY!!) even though I renegotiate lower rates with them YoY :-). They have been around for 15 years but didn't get started until about 2011. You can watch the $0 revenue to IPO breakdown here too.
POD OF THE WEEK: Erica Schultz has led revenue strategies for Oracle, New Relic, and Confluent and has some great advice on Scaling Revenue this year and next.
1. SaaS METRIC OF THE WEEK: CONCENTRATION: Break out your tech dictionaries again because I'm not talking about my brain's ability to get distracted. Lightspeed Venture Partners' Nnamdi Iregbulem has outlined a new metric he created called weighted average contract value (WACV). He argues this metric provides more meaningful information than ACV (see #1 above). The reason is that B2B SaaS revenue is highly concentrated due to the distribution of companies a SaaS company sells into also being very concentrated - a large number of smaller companies, a moderate number of moderate-scale companies, or a very small number of very large companies.
2. CONVERTIBLE LOANS: They are 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 what is involved in a convertible loan and what to look for.
3. M&A: According to this new report, Merger and Acquisition deals in the enterprise software sector are on track to pass last year's records and have already reached $104.7 B for the year, and the report doesn't even include Adobe's $20 B Figma deal. Many larger firms stepped up their M&A transactions hoping to scoop up cashflow-strapped companies as venture funding deals continue to pull back.
4. ESTIMATION: Estimating effort 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 that needs to bookmark) - Estimating Software Projects by Jacob Kaplan-Moss (and what to do when you mess up).
5. DEADLINES: Adding to #3 above, Author Douglas Adams once wrote, "I love deadlines. I love the whooshing noise they make as they go by.". It's funny because it's true. So, how do you make peace with that whooshing noise when it comes to software development? Check this article from Free Code Camp that discusses the art of managing the deadline - part of it is complementary to a reference to the sub-art of saying NO from a while back.
6. SATELLITE: In the latest hardware release from Apple, they have added Emergency SOS capabilities using satellites to the iPhone, and apparently, it's coming to their Smartwatches too. Open signal break down this announcement into what it means as a new opportunity space.
7. BENCHMARKS: Did you know more diverse teams grow faster? From Capchase, learn more about this benchmark in this report listing the metrics lenders, and investors care about most. In addition, there is a complimentary SaaStr presentation (Slideshare) and video here.
8. GROWTH LOOPS: Elena Verna is Head of Growth at Amplitude and has an excellent presentation from their Amplify 2022 event about predictable and defensible Growth Loops and how to make money from them. Elena makes the interesting argument that revenue is an outcome and should not be a KPI in Growth.
9. MARKETING FOR ENGINEERS: For all of you technical entrepreneurs who have built something and trying to figure out how to get it into the wild, check this GitHub-based curated collection of marketing articles and tools to grow your product. It's the ultimate GTM Repo!
10. CASE STUDY: Speaking of Repos, JFROG is a publicly traded Code Repository (same as GitHub and BitBucket), and, full disclosure, I had never heard of this company until I saw the write-up from SaaStr/Jason Lemkin. This is surprising as the company generates $270m in ARR and has 132% NDR and 97% Gross Dollar Retention - those metrics are crazy - but learn more here.
POD OF THE WEEK: Complimenting #2 above. The content pumping out of Y-Combinator is always good. YC Partner Carolynn Levy details the basics of startup financing and how modern early-stage financing rounds are done using convertible securities, like the SAFE note.
I just spent the last two weeks binge-watching and listening to SaaStr 2022 sessions - so here are some of the binge highlights:
POD OF THE WEEK: Bessemer again - State of the Cloud 2022: The Centaur Report With Bessemer Venture Partners (Pod 593 + Video).
1. SaaS METRIC OF THE WEEK: RULE OF 40: What is the 40% rule for SaaS companies? This video explains more but basically, when a VC-backed SaaS business (of over ~ $2m ARR) adds profit + growth rate, the total should be equal to 40% (or more). This helps calculate the cadence of a business: The faster they grow, the less profitable they need to be. Rule of 40 stocks have outperformed the broader indices, and IT benchmarks over the last 15 years.
2. ROAS vs. ROI: Which Metric Should You Use? First, let's define the differences; Return on ad spend (ROAS) is a metric used to measure the total revenue generated per advertising dollar spent. Return on investment (ROI), as applied to advertising, is the profit generated by the ads relative to the costs of the ads. Read more here on how to use each of the metrics effectively.
3. RENEWALS: Existing customers are the lifeblood of growth in a SaaS business, so making sure they renew is an exercise in revenue efficiency. New customer acquisition costs average about $1.10+ per $1 of ARR. Compare that to the cost of retaining or up-selling existing customers (about 12c-15c per $1ARR) - that's eight times cheaper. So take a peep at this article that lists 5 SaaS Renewal Best Practices and explains how best to calculate renewal rates.
4. BUYERS vs. USERS: The person writing you a check is not necessarily the same person getting value from your business. So read this insightful article from HeavyBit on differentiating messaging based on this premise and the different profiles.
5. HIRING: According to a recent Mulesoft/Salesforce report, 73% of Tech leaders said the current recruitment market is the hardest they've ever experienced for sourcing talent. Most (98%) say their organization suffers from a skills gap due to the "Great Resignation."
6. INFLUENCERS: A couple of years ago, I reported that Influencer marketing spend is projected to hit as high as $15 billion globally by 2022. Guess what? That number is now $16.4B. Why - as much as I don't like to hear this - across multiple forms of media, influencer ads spark a more significant emotional response and stick with users for longer than non-influencer ads.
7. FIGMA: In the newsletter a couple of weeks back, I discussed Figma. Adobe was probably paying attention because they acquired Figma late last week for $20 Billion. Yup, I said Billion, but that's not the most Bonkers metric because that $20 Bil is based on a 50X Multiple. Whoa! Is SaaS cool again? Welllllllll......maybe not.
8. VENTURE: In line with the Figma multiple above, Mark Suster thinks that SaaS companies should not trade at a 24x multiple as they did in November 2021. His perspective is that 10x (May 2022) seems more in line with a new long-term normal.
9. UBER: There was a big-time breach last week, and by big time, I mean all of it. From AWS to Slack and their internal systems. All apparently by an 18-year-old. I don't think we know how actually screwed they are yet.
10. CASE STUDY: Craigslist. If you haven't been on Craigslist for a while, don't worry. It still looks the same. 25+ years of the same-same. Here's why.
POD OF THE WEEK: Learn Fast, don't Fail fast - this is a great podcast covering the Myths about Failure from Greylock Partners (and Reid Hoffman)
POD OF THE WEEK: Complimenting #7 above - insight from running a Content Program (or is that Product?) as a one-person team.
POD OF THE WEEK: With Yuriy Timen, former Global Head of Marketing and Growth at Grammarly, discusses the ever-changing world of growth, emerging growth tactics, and how to find your growth engine.
1. SaaS METRIC OF THE WEEK: EARLY STAGE BENCHMARKS - Metrics are only good if you know what to benchmark yourself against, and Chartio has a list of 20 benchmarks for Growing Startups, all handily broken down by department (such as Sales, Marketing, Product, Revenue) to make sure that the business is ready for scale.
2. PRICING SENSITIVITY: I post about pricing a lot (because a 1% increase in price can generate up to an 11% increase in your profits). So this week, let's take a more nuanced approach by looking at priced-based sensitivity - a measure of the percentage of sales you will lose or gain at any particular price point relative to another lower or higher price point. Profitwell can explain it much better - so take a read of their article about how to measure and optimize it (check the Van Westendorp's Price Sensitivity Meter")
3. UNSHIPPING: Here is another term for your Tech Dictionaries now that we have all poured one out for Internet Explorer - how can you and your team decide when to unship something? Check here - an excellent article covering this topic from Reforge with evaluation criteria and real-world examples from Slack and Mixpanel.
4. PRODUCT MANAGEMENT: Requires outstanding leadership - here is an interview with the Head of Growth at Reddit and the Head of Product at Twitter on how to create a good vision and strategy.
5. VENTURE: This week is a look at Silicon Valley Bank's biannual State of the Markets Report for H1 2022. Tech talent shortages, inflation pressures, and supply chain delays remain serious operational headwinds for startups. On the flip side, there is still an abundance of capital (about $228B in dry powder) - which could fuel growth as long as the money is affordable. SVB forecast Series A deals to break 2,000 (1,526 in 2021). This is in line with observations in the Wilsons Sonsini report discussed last week.
6. DEMO: I love a good demo (who doesn't?), and for me, Demos play a pivotal role in our sales process to demonstrate and discuss the value we can bring. The team at Content Beta analyzed a bunch of Product demo videos (100+) and reported back on places where these videos went wrong, so yours don't have to.
7. BUDGET (PLG): Guess what everyone? It's friggin' September. a) How did that happen? b) It will be EOY before we know it, which means EOFY for many. 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 to understand better how businesses allocate their resources (based on interviews with over 600 SaaS startups).
8. AI: According to McKinsey, in their Technology Trend Outlook report, businesses spent $165B on artificial intelligence tools last year, up 150% since 2018 ($66B). But according to this Gartner report, only 54% of AI projects make it from pilot to production.
9. DIGITAL EXPERIENCE: Contentsquare has released a pretty extensive Digital Experience Benchmark Report for 2022 (PDF version is here). There are massive amounts of insight here (based on 46+ billion global user sessions). Here are some highlights: Conversion rates increased by 27% YoY, 2.3% average conversion rate, 58% of all web traffic is mobile, and on average, 1 in 2 visitors are returning.
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: There is always a first. And for this newsletter, it's a link to a Joe Rogan Podcast. He spent over 2 hours with Mark Zuckerberg, who used this podcast to announce the launch of Meta's new virtual reality headset at its Connect conference in October.
1. SaaS METRIC OF THE WEEK: Another 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, just click here.
2. PR: Getting good PR if you're an unknown startup is hard (and also can be seen as a low priority in the endless stable of things-to-get-done) - but it's not as hard as you think without a publicist. Here is a great 101 article from Point Nine Capital (they call it PR for dummies) on how to get great press coverage. ChartMoguls also have this article late on PR for SaaS - with some sample scripts!
3. UNBUNDLED: This is a great read (at least for me). For years the common VC adage was that if you are not located in Silicon Valley or in later pre-COVID years, San Fransisco, you ain't worth considering. But last month, Andreessen Horowitz (aka a16z) declared that Silicon Valley, the Region, is philosophically over and that their "headquarters will be in the cloud" going forward. I think this is a pretty big deal for most global Tech Companies - read more via this interview.
4. MARKETING: For me, the main goal of any marketing campaign is value-based. I'm trying to convert people that consume some of our marketing efforts into happy customers. Knowing what works can be complicated: measuring ROI, attributing revenue, measuring brand awareness, overall campaign success, etc., etc. So bookmark this marketing attribution dashboard like me: It covers all the attribution model types and metrics, best practices, tools de jour, and more.
5. COMMISSIONS: How should you pay your different sales channels? Commission sales levels are stable across sale types at about 10-14%. Commissions on renewals are only 3%, and upsell is 9% - however, about 50% of the time, this is not paid at all. (Bringing up another subject on how much revenue a Customer Service Manager can manage).
6. VENTURE: According to The Entrepreneurs Report for 1H 2022 from Wilsons Sonsini, eleven percent of Series B and later financing deals were considered down rounds, the largest share of down rounds since the beginning of the COVID pandemic (Q2 '22). Flat rounds have also increased to 7%. However, valuations are still rising (in series A and B deals).
7. BRIDGE LOANS: In the Wilsons Sonsini report above, Median bridge loan amounts decreased for both pre-and post-Seed companies in Q2 22 and had shorter maturity periods (50% had less than 12 months), so understanding Bridge Loans may be more critical now than ever. Here is how Fred Wilson likes to structure investor Bridge Loans.
8. NET INCOME: In 2020, revenue growth was the most important factor explaining a public software company's forward multiple. NDR has been popular of late - but none of these dramatically matter anymore - it's now Net Income.
9. PRICING: As stated in previous newsletters, pricing is never correct, and we are not charging enough. But 2022 is adding another challenge to our attempts at pricing: Inflation and a recession. FastSpring chimes in on this by deep diving into these challenges via this report. Fun Fact: 37% raised prices by over 10% between Q1 21 and Q1 22. Those that did raise prices grew 15% more than companies that didn't, demonstrating an older article that a 1% increase in price can generate up to an 11% increase in your profits!
10. CASE STUDY: Shopify has been in the news a fair bit lately, and their pandemic boom may be over. But they are still reporting revenue of $5B ARR! Jason Lemkin of SaaStr looks at the top 5 interesting things from their last financial report.
POD OF THE WEEK: Complementing #9 above is from SaaSclub: SaaS Pricing Strategy: Top 5 Mistakes to Avoid
1. SaaS METRIC OF THE WEEK: Product Market Fit Andrew Chen from a16z is excellent, and his PDF/deck on going from zero to Product Market Fit is awesome (For SaaS, he calls this a 5% conversion rate from free-to-paid, or 3X CPA to LTV ratio, or less than 2% monthly churn rate, or TL;DR.... just a clear path to $100k MRR). He also has an accompanying article with notes.
2. SALES OPS: For those lucky enough to be in Scale-Up mode. Scaling creates some real teething problems. Especially when it comes to 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). In modern times, Sales Ops operators are required to help coordinate cross-departmental activities to help a revenue organization hum. Read this Sales Ops primer article from Point Nine Capital on how to get all this started.
3. ROADMAPS: The old-school way always seemed clunky to me, especially in today's Agile workplaces. But Agile teams absolutely need them as a reference point and sense of direction with what's to come beyond their more myopic Sprint cycles. Read here on the reasoning why along with 5 roadmap templates to use. I'm a fan of how Atlassian have designed their public accessible roadmap, and I have launched my own publicly accessible (Kanban-style) road map and even use it as part of the sales cycle - it works well!
4. BURNOUT: If one thing the past few years have taught us via the Great Resignation - it's that burnout is real! McKinsey explores burnout in the most Consulting way possible - are you asking the right question?
5. PLG STACKED: Adopting a PLG strategy requires unlocking a new tech set to traverse, so get your subscription wallets ready. Here is the mother load of tools you can use from the team at Product Led - Product-Led Growth Tech Stack: 199 SaaS tools for growth. There is an extensive list of tools in there I already use - and I ain't even close to being PLG.
6. EXPERIMENTS: In a very enjoyable mentoring session last week, we took a deep dive into experimentation - because every path you take towards growth and revenue should be a hypothesis in startup land - time to upskill your experiment skills by reading how to run a growth experiment (in 4 easy steps!). Testing versions of things is something to embed across your company and culture as you experiment towards growth - it's why failure is key to not failing. When conducting experiments such as A/B tests, get started with this refresher and Step-by-Step Guide. Go Practice has some great advice on making these experiments run faster.
7. UNDERSELL: If expansion fits into your growth strategy (it should) take a read of the two-part series from Tomasz Tunguz and Bill Binch - part one is deliberately underselling as a sales strategy to minimize churn and increase upsell/expansion opportunities as a land-and-expand strategy. Post 2 is an expansion of land and expand, which details how to structure a Startup sales team for optimal land-and-expand.
8. SDR RAMP: Kinda expanding on above. According to past studies, the time to ramp for an SDR average is about 3.2 months. From Saleshacker, here are some tips and tricks to make this ramp time as effective and successful as possible.
9. GROWTH: Holy smokes - check this play-by-play SaaS Growth Strategy post from Startup Business Tips - a free worksheet available for you here too.
10. CASE STUDY: Complimenting #6 above on experimenting. On the extreme end of A/B testing is booking.com which often runs over 1,000 tests simultaneously! But here is the payoff: That flywheel enabled Booking.com to compound at healthy growth rates while maintaining ~30% EBITDA margins and scaling Google ad spend to approximately $4 billion per year!
POD OF THE WEEK: It's the TL;DR Video version of #7 above on how to structure a Startup sales team for optimal land-and-expand.
1. SaaS METRIC OF THE WEEK: T3D3: No, this is not a reference to a Star Wars Droid; it's an update to a much loved "T2D3" metric that Neeraj Agarwal of Battery Ventures referenced back in 2015. The original is an acronym for "triple, triple, double, double, double" and refers not to the secret burger menu at In-N-Outs, but to a company's annualized revenue growth path towards becoming a unicorn. T3D3 is the updated version of that acronym which is, you guessed it, "triple, triple, triple, double, double, double." This update was due to the explosion of valuations and market caps, so let's see if 2022 reverts back to the original T2D3.
2. VENTURE: July Funding numbers are out and don't look stellar. According to this article from Crunchbase, venture funding declined globally to 28 billion (a 34% MoM drop), down from $63 billion last year.
3. OKRs: Pioneered by Google a couple of decades back, OKRs have emerged as a part of the suite of modern product and company best practices (that include Lean, Agile, and Jobs-To-Be-Done frameworks). Heavybit has a great article on steps to get started for the first time within your organization.
4. CHANNEL SALES: As I'm learning, figuring out channels (new, emerging, adjacent, uncertain, etc.) requires experimental rigor and good process. Reforge.com are never lacking for detail when it comes to addressing topics like this so take a deep read of their article here complete with a framework, case studies, and a Worksheet (Google Sheets style!).
5. PLANNING #1: Mike Tyson put it well, "Everyone has a plan 'till they get punched in the mouth", and Covid, combined with the economic downturn of 2022, has been a real metaphorical one-two face punch. So take a read here from an article last month by Lucas F. Costa on why long-term plans don't work (and how to fix them).
6. PLANNING #2: But the ying to the yang above, if you need to be better at planning, is this is an excellent (pre-one-two Face punch above) article on planning from First Round Capital. It includes lessons from some of the best planners (along with their processes) at Airbnb and Eventbrite. It's an intense read and has some really great templates (including the "W Framework" for you to put to work.
7. PLANNING #3: This year has sped by for me, and for many of you with calendar EOY/Financial EOY, the year-end will be here before you know it. So here is a question: How Dynamic Is Your Revenue Plan this year? Who knows what new mouth-punch event could happen next year that could stall or even reverse your growth aspirations (hello, recession/inflation!). So it's time to pull operational techniques from other departments (such as your Dev squad's 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), and First Round Capital feels the same way - Annual Planning is Killing Your Growth - but takes a different tack - building a three-year plan!
8. PLG: Product-led growth is ever evolving and maturing, and Openview just launched a new view on the 11 Principles/Trends for PLG based on their insights and lessons learned over the past 8 years since the phrase was coined. Infographic of all 11 here.
9. EMAIL (deep dive): On the non-PLG end - Cold email outreach is a go-to modern-day sales tool, but this method historically had a meager response rate (1% for cold emails). 1. Jason Bay has spot-on methods to optimize response rates, 2. Predictable Revenue has this PowerPoint deck on the four pillars they think constitutes a quality sales-based email campaign. 3. This is a quality case study for anyone with email marketing as part of their businesses - a deep dive into a single cold email and why the author actually opened it (TL;DR - yes, it's all about everything in the design of the email, but its more about how targeted the message is). 4. So here (from LeadIQ) is their 3-step guide to getting noticed by email. And finally, with a VERY focused mission on getting to Demo - a guide to booking 70+ demos/month/rep using cold email.
10. CASE STUDY: Pitch Decks - from CB Insights is a collection of the early pitch decks of 29 startups before they became billion-dollar companies, including Airbnb, Brex, Canva, Facebook, and Dropbox.
POD OF THE WEEK: This week, it's a video. Product Lead Growth is now very much a thing since the OG's of the term, Openview, coined it back in 2016. This is the TL;DR from #8 above - 11 Tips for Startups using Product-Led Growth.
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. WEBSITE TRUST: Do you have a high churn rate on your home page or landing pages? If so, maybe you have a trust problem. This article outlining the Trust Pyramid is very much worth a read, but TL;DR A website must meet users' basic trust needs before a visitor can be expected to engage meaningfully. With the Trust Pyramid, there are 5 distinct levels of trust-based engagement, each with different design requirements.
3. SPEND: We are all aware of this industry open secret: - SaaS is just a giant Ponzi Scheme - because running a SaaS company requires you to spend a cloud-load of your hard-earned money on other SaaS products. But how much money do SaaS companies spend on everything? Take a read of this benchmarking report for your spending habits. Remarkably to no one, bootstrapped companies are being outspent by venture-backed companies - but the average is 80% of ARR to 115% ARR!! (operating at a loss to support growth - because growth is a Moat).
4. TECHNOGRAPHIC: The evil twin to #3 - Add this doozy of a Portmanteau to your dictionaries and spell checker as it is the label for the Ponzi scheme I described above: How Many Technologies Can a Company Adopt at Once? Answer - there is always one more (JK, but not really).
5. $100 MILLION DOLLARS!: (Insert Doctor Evil GIF in your mind right here). According to the Grandfather of SaaS, David Skok - The average SaaS company burns $52m to get to $100m in ARR, which takes under 9 years (8.7 to be exact). So how? Check this great article from Bessemer Ventures (it's also a little depressing). It's a benchmarking report, complete with a downloadable PowerPoint for what it takes to reach $100m ARR - asking the big questions: What should your gross margin be? How much should you be spending on R&D as a percent of revenue? How does your company's growth rate compare to peers?
6. THE GREAT RESIGNATION: It looks like we could be moving into a "Great Redundancy phase," - but what was the impact of the 'Great Resignation' on B2B SaaS Companies over the past couple of years? The Team at SaaS-Capital takes a look - There is a strong linear correlation between retention and ARR growth rate.
7. VENTURE: Here is some not-negative news: According to this article/report from Crunchbase, regardless of the current market conditions, the most active top 40 VCs have not slowed down, matching the number of investments from 2021. It looks like they are getting good deals, though, as the overall amount of money invested has decreased (which is more in line with the market downturn).
8. SMB: In general, the Old SaaS-Skool guidance was to start chasing the most significant contract values as soon as possible (hello Enterprise!). But 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!
9. PRODUCT MARKET FIT: At an IRL meetup last week, some discussions were had about Product Market Fit and how to measure it. It's crucial because more than 50% of the time, the lack of Product-Market Fit (PMF) factors into the reason a startup fails. Sure - there are ways (listed in the archives of this newsletter) to measure it - but it's an Art more than a science - so read here on how Product Market Fit should make you feel.
10. CASE STUDY: Expanding on #1 above, Time to Value is front of mind for me right now - so, of course, I found a case study on it (its' a LinkedIn post) - but it gives excellent examples of what quality TTV looks like.
POD OF THE WEEK: Unpacking Product Market Fit - #9 the podcast version - this episode references different examples and strategies to understand what kind of PMF would work for your startup.