1. SaaS METRIC OF THE WEEK: VALUE-BASED PRICING: It's 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 Profitwell has a comprehensive 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 is a variant of how to research and implement a value-based pricing model.
3. ENTERPRISE: Moving upmarket into larger organizations is a standard SaaS growth strategy. Increasing ARPU (Average Revenue Per Customer) is good! But it takes a lot of work to pull this move off as a tiny startup selling to large organizations. Here are 10 tips for selling to big companies as a little guy.
4. PERSONALIZATION: SaaS marketers have been increasingly turning to personalization in recent years to increase conversion rates, improve customer success, and increase the quality of sales/marketing funnels. So check out this great article from Chart Mogul on the (modern-day) personalization fundamentals. As a teaser: Personalization reduces acquisition costs by as much as 50%, and 87% of companies see a lift in key growth metrics when they employ personalization.
5. PLG DATA: One of the keys to excellent product-led growth is capturing and leveraging the right data to determine what to build next. Here's how to do that (REALLY in-depth with great examples).
6. INFLUENCE MAPS: I love discovering great tools - especially visual ones, as my mind works mainly in diagrams. Add Influence Maps to your tech dictionary this week - as one of the coolest Marketing Frameworks I've come across in a while and is an excellent tool for answering strategic marketing questions.
7. DEV: Great report from HeavyBit covering Software and Development Trends for Engineering Leaders, 16 pages of quality, including best practices, top languages, trends, and spending forecasts (Productivity Tools are top).
8. FINANCES: For many startups across the globe, it's been a heck of a month for finance teams. So for pre or post-mortem reasons, look at these guides on cash management and treasury management to help with more strategic planning or finance-based BCPs going forward. They are Google Docs - so be sure to make a copy!
9. VC AI: Pitchbook has launched an AI platform called VC Exit Predictor. This new tool aims to answer the question, "Of all the startups and funds, which ones are worth putting time into?". A full PDF report can be viewed here.
10. CASE STUDY: The Airtable links last week were popular - so doubling down on journeys into the Enterprise this week with a great article from Canny on how (tactically) they did it.
POD OF THE WEEK: From Ophelia Brown, the Founder of Blossom Capital, discusses why growth investors ruined the Venture market (mainly via follow-on investing), along with some insight into the European VC market.
1. SaaS METRIC OF THE WEEK: FINANCIAL MODELING: Fun fact: SaaS financial modeling is uniquely complex and requires careful thought and expertise. Luckily, there is a boatload of helpful content on the web to help with financial modeling. Baremetrics are incredible at this and have 1. An overview of why SaaS metrics are different; 2. A deep Dive on a usable model for you; 3. A Google Sheet that is ready to go (make yourself a copy).
2. SILICON VALLEY BANK: This week started with absolute chaos in the startup world, and hopefully, the crisis has been diverted, as it would have been a global GFC-style event. For an accurate unit economics breakdown of what caused the run on SVB leading to its demise in under 48 hours, read this post - or here for a longer Twitter version. I can't wait for the movie. (note this is written as of Wednesday this week, leaving plenty of room for more chaos before publication). Tomasz Tunguz has some wise words though "Take a Breath."
3. DILUTION: I didn't mean to scare you with that word. It's one of the most feared words a founder can hear. So here we go - let's make it a benchmark. What is the average ownership percentage by SaaS Founders at the time of IPO? Sammy Abdullah takes a review, and the median level of founders' ownership is 14% while the average is 23%, with VCs owning about 54% on median. Obviously, there is a significant difference in Bootstrapped vs. not in this dataset.
4. SPEND: I can't report all doom and gloom this week. For startups that sell B2B, good news, the Q1 2023 Cloud Software Spending Survey from Battery details a robust software spending budget. 46 % expect to increase budgets in 2023.
5. EXPENDITURE: Rounding out above with some opposite state stuff: We all know running a SaaS business is basically a Ponzi Scheme of having to spend a bunch of money on other SaaS Products. So in these operationally critical times, what are ways to cut some spending, especially as SaaS pricing inflation is five times higher than market inflation? TechCrunch has an article promising to cut your spend by 30%.
6. SHERLOCK HOMEBOY: Crack open your Tech Dictionaries so you can add this awesome phrase. The Sherlock Homeboy Technique is a way to reverse engineer your Content Marketing strategy for the rest of the year.
7. CHURN: Churn is not a Customer Success problem- it's a business one. Check out eight ways to move the needle on churn in this current economic environment.
9. AI: Sample size of 1 - NetDragon Websoft, a Hong Kong-based online gaming firm ($2.1B in annual revenue), has appointed an AI CEO (Ms. Tang Yu). Check out how Ms. Tang Yu outperforms the Hong Kong Stock Market by working 24/7 for $0 in salary. Not too bad considering that at Fortune 500 firms, the average CEO pay is now about $16m per year - time to take another look at #5 above.
10. CASE STUDY: 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 also leverages SEO.
POD OF THE WEEK: Complimenting #10 is from Lennys Podcast on Lessons from Airtable's unconventional growth strategy and how Airtable found its first super-users.
1. SaaS METRIC OF THE WEEK: CAC PAYBACK: Cash is king in the SaaS world, and the shorter the payback period is for the acquisition (CAC), the better (getting to cash flow positive). Here is an article that looks at ways to shorten CAC Payback.
2. 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 some Outbound Sales TV? The team at predictable 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.
3. 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.
4. SALES EFFICIENCY: Tomasz Tunguz has a banger of a post that takes a deep dive into Sales Efficiency through and after the COVID era. Since 2016, on average, Public SaaS sales efficiency has dropped from 52% to 47% (a drop of about 10%), and he notes that it isn't COVID - it's competition that's creating the slide.
5. PRODUCT MARKET FIT: To me, Product Market Fit is as constantly evolving (and never finished) as pricing. But way smarter people than me write about PMF in incredibly detailed ways - such as Brian Balfour, who wrote a fantastic article on the subject that is now almost ten years old and still very relevant for figuring out what stage(s) your startup may be at.
6. PRICING: Speaking of pricing never being finished (see above), here is a bookmarkable guide on leveraging product usage data to evolve your business and product packaging and pricing.
7. WEB3: The space has been quite volatile for several years, but investments and startups continue in the space, and McKinsey has a great article outlining the structures of Web3 that can take it beyond all of the hype and even have one for all you Web3-new CEOs.
8. FRAMEWORKS 1: HEART Framework - this was designed by Google'sGoogle's research team and is a methodology to improve software user experience (UX). It'sIt's an acronym for measurable UX evaluation: Happiness, Engagement, Adoption, Retention, and Task Success.
9. FRAMEWORKS 2: PIRATE METRICS (or AAARRR) were first proposed by 500 Startups. The great thing about this acronym-based grouping of metrics is that it can apply to non-software products or services as well as traditional SaaS as it's all about awareness/activation: Awareness, Acquisition, Activation, Revenue, Retention, Referral.
10. CASE STUDY: Sequoia Capital. According to a report from CB Insights (PDF version here), Sequoia Cap backed almost 100 startups last year. 1/4 of which were fintech startups. Three of the four deals in the capital markets sub-sector were follow-on rounds, meaning they remain pretty frothy in this category.
POD OF THE WEEK: Being first to market is not necessarily a winning advantage (looking at you, Friendster). Des Traynor (co-founder at Intercom and a great speaker) dives into elements that make a move into Enterprise effective.
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. A recent analysis of usage-based pricing from Bessemer Ventures is here to help you think about your own pricing models.
2. CUSTOMER JOURNEY: What the heck is a Customer Journey anyway, and why do you need to create one? Now that you know you need one, mapping out a Customer Success Journey via a visual map is a great way to tell what areas a Customer Success Team needs to be involved in (and what their responsibilities will be) via various engagement models. And a "complete guide" with some great, modern templates can be found here.
3. VALUATIONS: AngelList keeps a comprehensive set of Startup Valuation Data. Here are the highlights: Average valuations for startups in Q1 2023: Pre-seed $10M, Seed $19M, Series-A $95M.
4. SALES vs. MARKETING: Great (and relatively short) read from Jason Lemkin here for all you early-stage people discussing how a startup's growth problem was misdiagnosed as a sales one (when it was actually a marketing problem).
5. SLOW: One lesson my brain still resists thoroughly learning is that with any new technology adoption curve, regardless of how progressive or latent the core demographic is, customers will move way slower than you want them to.
6. REPRESENTATION - VENTURE: Women-founded startups raised just 1.9% of all VC funds in 2022, a drop from 2021. This comes at a cost for Female Founders who fundraise only from Female VCs. Women-led firms whose first round of VC funding was raised exclusively from female VC partners were two times less likely than those whose first round included male partners to eventually raise a second round.
7. REPRESENTATION - Web3: In Web3 only, well known for CryptoBros, 13% of Web3 founding teams include a woman, and only 3% have teams exclusively made up of women. Nasdaq has gone even further to ask what it is people are even building in the metaverse given the current gatekeeping status quo (and who's on a mission to fix it).
8. BUYOUT CONTRACTS: SaaS is increasingly competitive across markets and niches. To be successful, there are some cut-throat things you will have to do, one of which is offering buyout deals. If you want to steal a customer from the competition. Jason Lemkin goes into some detail on this topic via this post (including when Buy out contracts make sense and how to structure commission.)
9. ZERO-BASED DESIGN: Internal performance improvement may be higher on your agenda this year compared to previous years, so crack open your dictionaries to add Zero based Design. McKinsey goes even deeper than the Bain article linked with this paper, looking at what they call "Operations Practice," which is the kind of modernization process problem that companies such as ProMapp help solve.
10. CASE STUDY: Surely you have all tried ChatGPT out by now - but how the heck does it actually work? Here is an inside look into what ChatGPT is and how this kind of model (large language models or LLM - for your tech dictionaries) actually work.
POD OF THE WEEK: The extension of #6 above, a Podcast from TechCrunch covering more in-depth numbers and subjects such as pitching bias, the complications of imbalance, and more
1. SaaS METRIC OF THE WEEK: Here is another list (seven) of the SaaS metrics that VCs evaluate Startups on - the bonus is that it comes with a downloadable Google Worksheet template (make a copy for yourself).
2. BUSINESS MODEL: You will be asked often, especially when pitching, about your go-to-market business model: This is a pretty long but very high-value read from Alex Jarvis with real-life examples of good business models (and some good humor thrown in). The business model is always more important than the product (but of course, they both matter - but so does timing. There is a more extended PDF version - so I got that for ya too.
3. MARKET SIZING: The dreaded slide on everyone's pitch deck that is required to outline the business model and pricing in #2 above. What's the size of the market? TL;DR if the market is small, same with your startup. Understanding the nuances of TAM, TOM, and SOM is a great way to complete the slide but get started with your TAM first via this guide from Bling Capital on how to size a market (in 30 minutes!).
4. VENTURE 1: A couple of weeks back, I discussed the potential of a mass extinction event coming for early & mid-stage startups (#8 and #9)- same is probably valid for Venture and, according to this article, a "horde of ailing venture capital zombies" will emerge in the coming years.
5. VENTURE 2: Adding to evidence for the impending VC Apocalypse above, January's VC funding landscape stats are in this Crunchbase report - all rounds were down except seed. And that includes the banger of a round from OpenAI (ChatGPT's Parent) of $10 Billion.
6. 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!
7. PRODUCT LED FRAMEWORKS: Bookmark this as it's the first part of a pretty amazing 3-part series from Calixa covering PLG fundamentals, starting with defining what a PQL (product qualified lead) is and how to find it.
8. B2B MARKETING 1: SaaS B2B Marketing is a unique beast. I'm running a new demand generation campaign and finding out the hard way that growth marketing and demand generation are different. So don't learn the hard way, as I did. Instead, read this too-late-for-me article from Emily Kramer if MKT1 on the difference (and how to organize your B2B growth marketing team).
9. B2B MARKETING 2: Now that market conditions dictate profits are more important than growth, what is the role of growth marketing? And is it even marketing in the first place?
10. CASE STUDY: According to the Bessemer Cloud Index, only 11 of its 75 companies earn a profit today, but here is Slab's path to startup profitability.
POD OF THE WEEK: A great discussion in the Y-Combinator Podcast on the normalization of Startup jobs in the US and beyond (and how the drift from non-conformists (less than 15 years ago) to mainly conformity today.
1. SaaS METRIC OF THE WEEK: Net Dollar Retention is an essential metric in the new world of Product Led Growth. It's used to help answer the following: Does my Startup need to increase customer acquisition/marketing spend? Crunchbase has already done the work to calculate what good NDR benchmarks should look like, but this month, Tomasz Tunguz looks at what it takes to achieve 200% NDR!
2. POC: I switched to proof of concept (POC) based paid trials as part of our enterprise sales process last year, and I like it! It's working well 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.
3. CAP TABLE: How do you best manage dilution from a cap table perspective? Here is what is considered "Normal," and read this article from Heavybit that discusses Cap Table management in relation to growth and how to manage that Option Pool.
4. INCENTIVES: Need to move beyond Founder-led sales in your Startup? Close.com has a rundown of five different kinds of Sales Incentive programs, one of which I'm sure would be fit for purpose for you (along with incentives to keep a sales team motivated. This post from Jason Lemkin also outlines how to construct a framework for your first SaaS sales compensation plans.
5. PROFESSIONAL SERVICES: It's a weird open secret that many B2B SaaS businesses generate significant Revenue from implementation and deployment projects, often captured as Revenue from Professional Services. This week Dave Kellogg has a post - called the Professional Services Paradox, where there are times when only a Startup can deliver the services needed to execute a transformation strategy. BTW - on average, Service Revenue as a percentage of Total Revenue caps out at 11% with Enterprise focused businesses. However, even at the lower end of town, it's still 5% of revenues with SMB-focused companies. Fun fact: more professional services, less churn.
6. SALES: ZoomInfo has unleashed an excellent playbook for all your business development teams, which I've already shared with my team. The PDF contains 16 of the best go-to-market plays from B2B sales and marketing pros across different sales funnel stages.
7. DESIGN: One of my many startup hats forces me to spend more time in Canva than I should (even though I'm pretty much canceling my Adobe Subscription as Canva can manage about 95% of my needs) - so this article a) Is visually lovely to look at and b) is in my Bookmarks of guides to reference: Visual design rules you can safely follow every time.
8. GENERATIVE AI: I bet most of you are already dabblers or active users (<cough> ChatGPT <cough>, so this should already be in your tech dictionaries, and by all accounts, Generative AI will be the next Consumer Platform. The use cases are everywhere - at least for me - and in particular, my new evolving relationship with Search and Google, a targeted integration into the business (KB articles and User Manuals), and my proximity to code.
9. CAPITAL: The article above on Generative AI then leads into more essential questions as this is a new functional application layer, so where will the value come from?
10. CASE STUDY: Founder-led sales is a well-documented part of the startup journey, often with inexperienced or more technical founders. Here is a list of 10 Founder-Led Sales lessons learned from a recent Race Capital roundtable.
POD OF THE WEEK: SaaStr is now running workshops every Wednesday - a great concept that hopefully lasts. Jessica Bartos of Salesforce Ventures was on the last one and noted that only 150 private SaaS companies have hit $100m+ ARR.
1. SaaS METRIC OF THE WEEK: ACV, or Annual Contract Value, is one of the most popular metrics in the SaaS world. This article from Chartmogul goes into detail about what it is, how to calculate it, and how to leverage it in your business. Here are some excellent recent data on ACV within scaled SaaS companies. TLDR, the median ACV is $49K.
2. WEBSITE: Quick Question "Is Your Website Stressing Out Visitors"? Quick Answer: Probably. Read further on the WJTBD (Web Jobs to be Done) or TL;DR - remove the noise and focus on the jobs you need the website to do.
3. VENTURE: From Law of VC is the Ultimate Guide to Fund Terms that can tell you all of the critical terms that govern venture capital funds so you can nod knowingly when pitching to all of those VCs.
4. REVIEWS: According to Gartner's 2023 Global Software Buying Trends report, user reviews, and ratings influence the purchase decisions most - 41%. And of those reviews - customer reviews are trusted by 49% and peer recommendations by 50%. On the other hand, recommendations from industry influencers are used by only 37%, 32% have outgrown their current technology, and 30% have concerns about security and cyber attacks - good information to know when targeting new SMB B2B Customers!
5. BUYERS: Software is generally a boom during Economic downturns - the downside of which is more competitiveness. So take note that in the same report above, almost 70% of small to medium-sized businesses plan to increase their spend on software this year, many to increase productivity (47%), and security is a Top Priority for Software Buyers at 42% (more so than ease of use - 38%).
6. PRICING: It's never right as it has to evolve (and we need to charge more). Intercom makes the case that a solid pricing strategy helps shape an entire business model.
7. 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!
8. STARTUPS 1: This is a bit of a ying and yang 2-part post: Tom Loverro of IVP makes the case via a Twitter Thread (and also mentioned in last week's All In Podcast) that there's a mass extinction event coming for early & mid-stage startups this year and next (due to short cash runways and the acute inability to raise cash in this market).
9. STARTUPS 2: To contradict (a little) the post above, Nnamdi Iregbulem, a Partner at Lightspeed Venture Partners, makes an in-depth argument that we don't have nearly enough startups (well, at least the good ones)
10. CASE STUDY: Successful onboarding is challenging in person - it's 10x harder in today's remote work environments. This is how Zapier does it (and leverages their own product to use automation to do it), and here are some lessons learned from Slack.
POD OF THE WEEK: The Video-version of #10 - Employee onboarding secrets from Zapier founder Wade Foster.
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)