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Curated SaaS and tech insight from around the web repackaged for people to put to good use
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1. SaaS METRIC OF THE WEEK: Churn. See #2 for more on Churn. According to CatchJS, though, we're all calculating churn rates wrong. If you love Statistics, the article is well worth reading. It even gives some Python code to perform the more complicated probability-based equation they recommend. You can then check this tool (as a handy Google Sheet) from Newfund to analyze the strength of revenue streams for any B2B startup. A complimentary article outlining the methodology behind the tool is here (and you should read it first).
2. CHURN: See #1 above; it's the ultimate leaky bucket. BVP's guide on tackling customer churn explains how to identify root causes and implement strategies to reduce attrition (that can be terminal). Analyzing churn data, improving customer onboarding, and enhancing product value to retain users are all in there. The guide also provides actionable steps for creating a comprehensive churn action plan to plug those leaks. 3. VENTURE: CBInsights has just released its Q3'24 State of Venture Report. They see more drops in funding, declining to $54.7B globally from $68.1B last Q (and the lowest amount on the chart), with Deal activity also down to 6,056 (from 6,736). Mega-Rounds prop things up (39% of total funding), and this will 100% bleed into this Q thanks to OpenAI's monster round last week as it plans not to be a non-profit - for much longer. The U.S. still leads regionally with over 50% share with $29.8B (across 2,176 deals, so the average deal size is also bigger). 4. PUBLIC CLOUD: Jamin Ball from Clouded Judgment gives the end of Q2 '24 public cloud software earnings analysis in this post and it's mixed results. While net new ARR improved from Q1, it's still down from Q2 '23. About 90% of companies beat Q2 estimates, (median + 1.6%) but only 55% of companies raised their Q3 guidance. 5. HYPERFUNCTIONAL SAAS: This is a new concept for me this week (but pulled from a talk at last year's SaaStr); traditional SaaS models are evolving, and "hyperfunctional SaaS" is representative of that. Jason Lemkin expands on this via this year's SaaStr, and it is where customers now expect multiple capabilities rolled into one seamless experience that helps them do specific tasks better. Examples are Figma, Notion, and Slack, which prove that some of the future of SaaS (outside of AI and Verticalization) may lie in specialization over broad horizontal solutions. 6. AI 1/2: Adding this footnote from above. Patrick Collison from Stripe looked at their customer data and noted that (well at least currently anyway) not only are AI-native businesses being built in large numbers, but that they're actually growing meaningfully faster than the fastest-growing SaaS cousins. 7. AI 2/2: According to Tomasz Tunguz, the AI Native companies mentioned above are spending more (on AI-driven innovation - duh!), and he argues that to remain competitive, other companies must follow suit. He notes that companies are significantly increasing their AI budgets as the technology is set to deliver huge ROI across all kinds of industries and niches. 8. GROWTH 1/2: Testing new tactics for marketing growth takes a lot of resources, and most of us often don't have much time for running experiments? So check this Google Doc from Dashly, where they collected 100 growth marketing hypotheses tested by a bunch of their experts. (includes advert retargeting, wait list for product launches, niche glossaries, etc.) 9. GROWTH 2/2: According to Mostly Metrics, companies and deals with ACV in the $50K to $100K deal range are feeling the heat right now as they are caught in the crosshairs of CFOs being tasked with cutting budgets. I'm feeling judged. The data shows that enterprise purchases are stickier due to their complex implementation and high switching costs, while SMB purchases fly under the radar. 10. CASE STUDY: HubSpot and Shopify have deep SMB roots but have also moved up into Enterprise. Both companies continue to cater to SMBs (critical to their growth engines). But the balancing act is diversifying revenue streams (and ACVs) while maintaining product and service flexibility to serve both ends of the customer spectrum. POD OF THE WEEK: Kinda adding on from #3 above, Rippling CEO Parker Conrad's Theory of the Compound Startup: Disrupting How We Think About Software.
POD OF THE WEEK: I've tried out the new Podcast feature via Google's Notebook LLM - it's crazy good (but they can't pronounce "SaaS"). Check it out here for the Podcast version of this week's newsletter. 1. SaaS METRIC OF THE WEEK: What KPIs do venture firms consistently care about across stages? This article highlights how KPIs evolve from early traction metrics like CAC and LTV to more advanced indicators like NRR as companies scale and also shifting into survival metrics like cash runway to operational efficiencies.
2. PATTERNS: The Data-Driven VC looked late last year at what data patterns can be analyzed across successful startups. Super interesting read, but TL;DR: most important is the number of executives, the split of business versus tech roles, the split of male versus female founders, and their age and degrees. 3. GROWTH: There are so many nuggets in one little post that summarizes the ChartMogul SaaS Retention Report mentioned in the newsletter a couple of weeks back. SaaS growth slowed in 2024 as it's harder to come by, and expansion is driving 40% of ARR growth for companies with $15M-$30M ARR (it was 30% in H1 21). Achieving 100%+ NRR is harder as subscriber counts grow. Good retention is key. 4. GTM: Earlier this month was the SaaStr Annual Conference, and during the event, Tomasz Tunguz the Theory Ventures team launched their 2024 Go-to-Market Survey results (you can also download the PDF here). This new annual survey looks at the state of SaaS sales and marketing strategies. Some super interesting observations: The perceived gains of AI are high, but that hasn't translated into conversion rates (yet); sales cycles are lengthening (with a median sales cycle now 12 days longer, which has a knock-on effect for payback periods, which are up by 12% average. 5. SALES TRANSITION: Moving from founder-led to AE-led sales? This article from Bain Capital Ventures makes the case that it's all about the "MVP/ICP Handshake." Nailing the alignment between your Minimum Viable Product and your Ideal Customer Profile is a crucial step. Without this, bringing in AEs too early can stunt growth (which has been seen time and time again in startup land). Solidify the customer segmentations and product-market fit before even thinking of adding a sales force. 6. FUNDING: According to CrunchBase, August was a slow one for Venture, hitting the lowest point of the year, with $18 billion raised (a 36% MoM decline and a 23% drop from August last year). AI and healthcare remain the leading sectors, propping everything else up, with AI companies alone raising $4.3 billion. North American startups scored 66% of the total funding, continuing to dominate, but any kind of exits or IPOs remain sluggish. 7. PRODUCT-MARKET FIT: A long-running general rule (called a Growth-ism) in the Startup world is that getting to $1m of ARR is a strong sign of Product Market Fit (PMF). Kaitlyn Henry from Openview runs contrary to this Growth-ism, stating that there's no specific revenue indicator that defines PMF, but she also continues to write about concrete signals of PMF available beyond a $$ amount and gut feel. Read more about all those signals here. This sits well with Brian Balfour's work, who wrote an amazing article on the subject that is now almost 10 years old and still incredibly relevant for figuring out what stage(s) you may be at. 8. JTBD: Jobs to be Done is one of my favorite frameworks - it's a way to make the process of innovation accessible and tangible in very pragmatic ways. Take a light read here on a lightweight JTBD framework - broken down with real-world business examples; you can also skip straight to the templates. Or go for the more comprehensive one here (that also has a template). Theory Ventures 2024 Go-to-Market Survey. 9. CONVERSION LESSONS: After reviewing 20,000 website conversion experiments, Kyle Poyar and co from Growth Unhinged's show that less is more. Simple, clean designs beat complex features like social proof, homepage videos, and strikethrough pricing, which often hurt rather than help conversions. If you're looking to improve site performance, keep it chill! 10. CASE STUDY: Ok - looking at #7 above - what could Product Market Fit experientially look like? Asking the PMF question, in my opinion, is always the nobler focus (as opposed to being focused on answering the question). But sometimes - you just gotta know! So here is a case study on how Superhuman did it. POD OF THE WEEK: It's a bit of a long one (coming in at almost 2 hours) - but SEO is changing fundamentally (and it's something I find quite fascinating and also equally annoyed by), so Lenny's Podcast interviews Eli Schwarts (an SEO consultant)covering how to re-think SEO in the age of AI. 1. SaaS METRIC OF THE WEEK: It's time to rewatch a video that should be Mandatory for onboarding every person in a SaaS company. It's from David Skok (a legend in the SaaS world) and covers hardcore B2B SaaS metrics such as Rule of 40, Repeatability, Net new ARR, Bookings, LTV:CAC, churn, etc., etc. - it's a metric-packed 20 minutes.
2. EQUITY: This bookmarkable series from Femstreet covers the startup founder's guide to equity. Don't worry about Part 1 - it's a very basic primer. The good stuff starts in Part 2 and covers the different types of equity at a startup (founder, investor, vesting, liquidation, pro-rata, etc, etc) and Part 3 - covers cap tables and things you can do if they are messy. 3. INVESTORS: Following up from above - the motherlode! Check out this Ultimate Investors List of Lists from The VC Corner. This list includes everything from venture capital firms to family offices, active angel investors, Corporate Venture Arms, and accelerators. Bookmark now! 4. CLOSURES 1: Startup closures continued to rise in 2024, and Q1 saw a record 254 startups shutting down, according to Carta. Check the graph - it's pretty alarming. This is a 58% increase from last year and came after a 124% jump between the first quarters of 2022 and 2023. It's hard to find updated data, but it looks as though this momentum has continued into Q2. 5. CLOSURES 2: And it's not just Startups. According to Equal Ventures, the VC landscape is facing consolidation pressures as large firms dominate the capital flow. In 2024, 44% of VC funding went to just two firms, and many smaller funds may not survive. The article predicts that 30-50% of venture firms could disappear, leaving the VC world increasingly homogenous and less innovative. 6. VENTURE: In another Carta report, the State of Private Markets: Q2 2024, we get a mixed bag of sentiment (this is for U.S. private startups) - mainly cautious with some whiffs of optimism: Median valuations increased somewhat across stages, but deal volume remains low. Early-stage startups are particularly affected, with fundraising still tough. Seed-stage valuations rose slightly, but it's still a volume problem, as the number of deals dropped significantly. Series B and C valuations are looking good, with Series D seeing a 200% increase. Adding in data from Crunchbase as it's taking longer and longer to close rounds (28 months' median time between Series A & B funding). 7. CUSTOMER SUCCESS: Great question: Where Should Customer Success Sit on your balance sheet? This article from Mostly Metrics answers whether CS teams should report to Sales or Product or operate independently. The answer? It depends. So read through because you may need to take a more flexible approach. 8. TERM SHEETS: Bookmark this for future reference. This Term Sheets guide explains the most important clauses—like valuation, liquidation preferences, and anti-dilution protections--it also offers some strategies for negotiating more founder favorable terms. 9. B2B MARKETING: Why do most B2B marketing plans fail? According to this article, it's because of "random acts of marketing." Complete lack of clarity is the main culprit. Then, they provide the goods with a structured approach. The article also has a helpful B2B marketing plan template with steps for planning long-term initiatives. 10. CASE STUDY: Adding onto #6 above, here are 15 SaaS Marketing Campaigns that had some pretty innovative strategies. This includes examples from Dropbox, Mailchimp, and Slack. POD OF THE WEEK: All about SAFEs - this podcast has pretty extensive conversations on fundraising with SAFEs, liquidation preferences, and the relationship between founders and lawyers. 1. SaaS METRIC OF THE WEEK: Growth Endurance Score (GES). This is a new one for me, and it's a metric that assesses a company's ability to sustain growth over time (something I have been discussing quite a bit lately, trying to maintain my own growth momentum). GES measures this efficiency by factoring in both net retention and customer acquisition efficiency. A high GES correlates with long-term business health and resilience. This score provides valuable insights for businesses aiming for consistent, sustainable growth. Bessemer has drilled deeper into it and Bessemer and plotted ARR growth lost YoY, and found that the decay is fairly predictable at 30%. That's a benchmark. In other words, you should expect next year's growth rate to be 70% of the current year as the stakes get higher.
2. GO TO MARKET: Go-to-market motions can be pretty specific and your GTM motions can impact your marketing strategy and your org chart. Robert Kaminski has distilled GTM motions into 5 types in this article based on a number of use cases; the summary diagram at the bottom is great. 3. NET REVENUE RETENTION (NRR): NRR is one metric I'm a fan of and has become a new modern gold standard for SaaS growth. So much so that ChartMogul now has a trends and benchmark report: industry average NRR ranges from 90% to 100%, and the top-performing SaaS companies achieve NRRs 120%+. It's an action-packed NRR report, though, with lots of fantastic insight. 4. CHANNEL: If, like me and a lot of other enterprisy B2B SaaS, channel-based partnerships are something you want to explore, take a good read of BVP's guide to building SaaS channel partnerships. Selecting the right partners, aligning incentives, and establishing clear communication and training protocols are all included. 5. SAFEs: Last month we reviewed how much dilution founders typically experience during SAFE rounds. But how does that reflect how much equity founders typically give up during these SAFE rounds? Check this short but sweet Carta article with data on the average valuation cap by stage and fundraise size. For example, raising $250K-$499K ("Angel Round") often comes with a median valuation cap of $8M, while $5M+ rounds ("Jumbo Seed Round") see a median cap of $36M. Founders should focus on ownership dilution as much as valuation caps to understand the real impact on their equity. 6. AI: There are some fancy charts in this University paper on ChatGPT use: Journalists, developers, and marketers are the highest users of ChatGPT compared to other roles. Here is some great revenue data for the big AI players, as well as the Top 100 AI Consumer apps according to a16z. 7. SPEND: Kinda bleeding out of #6 above, AI vendors like OpenAI are leading first-time purchases and a sharp increase in AI-related AP spend, according to this great business spending report from Ramp. Companies are also leaning into independent contractors and pulling back on advertising, indicators of a more cautious approach as economic uncertainty continues for most. This shift toward AI and flexible labor indicates where companies see value in the current market. 8. PITCH DECK: I know pitch deck posts are popular here because creating the perfect pitch deck is every Founder's stress-dream. Data-driven VC offers some data drive insight on optimal decks from startups that nailed their presentations, highlighting key elements like storytelling, market validation, and financial projections. 9. PIPELINE: Looking for some inspiration to build additional pipelines for the rest of the year? The Growth Unhinged Blog has some inspirations for you to review. 10. CASE STUDY: Talk about diversification - with thin profit margins on their primary business, Uber has now diversified heavily into advertising. They are generating $1b in advertising revenue, according to their Q2 20224 report. POD OF THE WEEK: Last week's Founder Led Sales post was a popular one - so here is a great Pod covering Founder led Sales and why PMF, problem solving, getting those early adopters, and invalidating things are all best done by founders. 1. SaaS METRIC OF THE WEEK: ARR per FTE: Capital Efficiency is a new-fangled metric we all want to track in these LeanOps times. Benchmarking this - the median is $143K per FTE according to the 2022 KeyBanc Private SaaS Report. With public companies, it's double that, according to data from Maritech, and Kyle Polar from Openview breaks this down to tell whether you're on the right track.
2. COMPENSATION: Kruze Consulting has a great article, with a calculator and awesome visuals, covering startup CEO Salaries based on data collected earlier this year. YoY salary is beginning to recover (but the data is diluted over a longer time between stages). Sadly, the gender gap persists. The data tracks well with a report from June 3. PITCH: Last week's whopper guide on Raising was popular, so here is a little bit extra: Need to craft some super effective pitch decks? Take a look at this "Pitch Deck eBook" by Deck Doctors and Hustle Fund, covering all the pitch deck's greatest hits: problem statement, solution, market opportunity, business model, traction, and team. (Real-world examples and insights are also included.) 4. CAPITAL EFFICIENCY: Capital Efficiency is back in Vogue (see #1 above and also #5 and #6 below)! According to Bessemer Venture Partners, here are the benchmarks for B2B SaaS to measure your payback against (full report here). 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. 5. SPEND: Question - How much do you plan on spending on your future operational plans? SaaS Capital has a wonderful B2B SaaS Spending Benchmark report to best forecast what to send on sales, marketing, CS, COGS, and R&D. And because 2024 will continue to be your year of LeanOps - here is how to manage burn and extend your runway into 2024 from Capchase. 6. ACCOUNTING. Check out this excellent guide from the SaaSCFO that covers key aspects of SaaS Accounting, such as recognizing revenue, managing deferred revenue, and tracking key metrics. It emphasizes what can sometimes be a bit of a disconnect, which is the importance of aligning accounting practices with our SaaS-specific challenges to make sure we have the right SaaS financial reporting to support good business growth. 7. DEVSECAIOPS: This is not a real port-port-portmanteau. I just made it up (you're welcome). With AI transforming every landscape, AI security is unavoidable and a crucial problem for builders and integrators to solve. This article dives into how enterprises are securing AI/LLMs, highlighting the shift towards security for AI (DEVSECAIOPS), with categories like governance, observability, and security leading the charge. 8. FOUNDER-LED SALES: I've had some healthy discussions on this over the past few weeks: Founder-led sales is a well-documented part of the startup journey, especially in the early days and often with very inexperienced or more technical founders. Here is a great article (with Engineering-based analogies) on how Founders can mentally re-frame and execute an excellent sales program. Here is a great diagram that summarizes how this works as you scale - do not skip steps (especially Step 2)! 9. PERSONALITIES: No one wants high-performing assholes - and there is now data to prove it! This article from The VC Corner explores how a founder's personality traits impact company culture, decision-making, and investor confidence. Resilience, vision, and adaptability can make or break a startup. Also - good news for you cool people: "Hipsters," "Hackers," or "Hustlers" are twice as likely to succeed. 10. CASE STUDY: Expanding on number 8 above, here is a list of 10 Founder-Led Sales lessons learned with a recent roundtable from Race Capital. POD OF THE WEEK: Generative AI won't take over your job anytime soon, but coding skills may become less critical in the future, according to Paige Bailey of Google. 1. SaaS METRIC OF THE WEEK: CUSTOMER SCORECARD - This article from ProductLed introduces the "Customer Scorecard" and highlights the power of a key metric, the "North Star," to align team and user interests.
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 incredible playbook for scaling. In this detailed book, Mark has defined different stages of scale, established quantifiable measures for each stage, 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. VENTURE-STRAPPED: This is a Top10inTech-ism for your tech dictionaries for a hybrid startup that is a mash-up of the old debate of bootstrapped vs. VC financing and applies to startups who raise only once. Which anecdotally seems to be a more common practice in these new market conditions (including Klaviyo and Zapier). Jason Lemkin notes this new one-and-done third way. 4. VALUATIONS: Despite the economic doom and gloom and VC challenges, early-stage companies are seeing high valuations driven by strong investor interest, especially with AI still frothy, but also in biotech. 5. LAW: From CBInsights is a 67-page report covering the 11 laws driving success in tech. These law-isms cover concepts such as Amazon's 2-pizza rule, the 80/20 principle, and more. 6. AI (SALES): AI sales reps are seeing rapid growth, but VCs look to be cautious due to long-term sustainability concerns and competition from incumbents (Salesforce has released agents that execute tasks such as answering inbound lead questions and booking meetings (RIP SDRs?). 7. RAISE: Whoa - a whopper guide (149 pages) that provides actionable insights for navigating the complexities of raising capital, covering investor relations, pitching essentials, market awareness, and the fundraising process. 8. PLG: Bessemer Venture Partners outlines an updated-for-2024 ten key principles for driving product-led growth (PLG); it's all about user experience, data-driven decision-making, and seamless onboarding. The article also touches on the need for continuous product iteration, clear value communication, and alignment of the entire organization around PLG strategies. 9. IT SPEND: Last week's copy of Clouded Judgement took a look at how Generative AI could double software's share of IT budgets (from roughly 25% to 50%). This increase would also result in a reduced headcount and outsourcing spend as AI-driven solutions become more integral to IT strategies. And in a separate report from IDC, worldwide spending on AI is forecast to hit $632B by 2028. 10. CASE STUDY: ONBOARDING: Kate Syuma breaks down key behavioral principles and dark patterns in user onboarding, with examples from Dropbox, Figma, and more. Learn how to optimize onboarding to improve user activation and retention. BONUS: The article also offers insights from "The Holistic Growth Playbook," including a deep dive into user psychology. POD OF THE WEEK: A great episode of Carta's Data Minute that covers how VC investment strategies work, pre-seed deals, the differences between multi-stage and small funds, and how SAFEs and pre-seed investing have changed. 1. SaaS METRIC OF THE WEEK: Metric plot twist: ownership. Let's say you have done the hard work and clearly understand the metrics you want to measure in your business. So go check this framework for assigning metrics ownership within teams. After all, clear ownership helps drive better performance and data-driven decision-making.
2. 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 a fully 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. 3. PRODUCT MARKET FIT: A big Startup-ism - More than 50% of the time, the lack of Product-Market Fit (PMF) factors into the reason a startup fails (keep reading this article though, as it goes through how StartupOS figured their PMF out). AirTree (an early-stage VC) has just published this article taking a look at what metrics VCs like them look at for signs of Product-Market Fit - and also what the red flags are. Also, this article has some great PMF definitions. PMF was called "the only thing that matters" to early-stage startups by Marc Andreessen 12 years ago. Now his team get a little more nuanced, suggesting to focus on Product-User-Fit as an indicator towards achieving PMF. A similar nuance is also true post-PMF with repeatable-scalable revenue models as a precursor to a repeatable-scalable business model (you know - the one with actual profits). 4. SEO: OK - rant time. It's actually more like S.E.Oh-No. I grow increasingly frustrated with Google Search and how the whole internet has gone to shit. It's gone even more to shit since last November, with changes to the Google Search Algorithm, which prioritized results from Forums such as Reddit and Quora (Side story - that created its own AI Hallucination Flywheel). So now brands are exploiting these forums, turning them into marketing channels and further diluting the authenticity of user-driven discussions. Can we not just have one thing?? This shift in Google's algorithm makes finding genuine, unbiased information harder as forums become overrun with brand-driven garbage-town content. Bring on SearchGPT! Time to optimize your website and keywords for Conversational Queries. 5. GTM 2.0: Now that tech companies are expected to show a balanced growth/efficiency strategy, what does that look like from a Go-To-Market Metrics standpoint? Growth Unhinged has you covered with a revamped approach to GTM metrics, spotlighting KPIs like CAC Payback, SaaS Magic Number, and Gross Margin and how to optimize these metrics for sustained profitability. 6. P&L + COGS: SaaS P&Ls are structured in specific ways, as 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 for COGS as well as how to structure a SaaS P&L. According to the Author - 90% of them are structured incorrectly, 5% are close, and 5% are correct. 7. TITLES: Earlier this week, I discussed the importance of titles in startups with a startup co-founder. Titles shape perceptions, both internally and externally, influencing early team dynamics and culture. Stay away from the C-Suite title sinkhole early - this article outlines why titles in startups should not be ego-stroke labels but strategic descriptions to reflect the stage and structure of the biz. 8. VENTURE: VCs are facing a challenging moment, with many looking to exit their investments as the market cools and layoffs happening internally. Rising interest rates, slower growth, and reduced valuations drive the trend, prompting a reality check among investors (with a 50% drop in funds being raised from 2021). This is a big shift in VC sentiment. I don't know how permanent it will be, where the focus is now on sustainability and profitability, and I'm not sure what that will do downstream to fund returns. 9. COMPENSATION: The Carta State of Startup Compensation report for H1 2024 is out, and it looks like benchmarks have remained flat since H4 2023. Companies are also much leaner across the board. For example, seed-funded startups had an average of 5.3 employees, down from 6.9 in H1 2021. 10. CASE STUDY: Scaling your Dev team by Stage. Bessemer Venture Partners has a great article on scaling your dev team from 1-10, 10-20, and 20-50. POD OF THE WEEK: Expanding on #9 above, Carta and Waseem Daher of Pilot discuss what founders should pay themselves, among other great SaaS financial metrics. 1. SaaS METRIC OF THE WEEK: RULE OF 40: Back in 2021, OpenView observed that "investors have forgotten all about the Rule of 40." Last year's response: the Rule of 40 is "back from the dead." This year, it's increasingly essential but a very tough bar to continually achieve Quarter on Quarter (but see #3 below).
2. JTBD: Jobs to be Done is one of my favorite frameworks. It makes the innovation process accessible and tangible in very pragmatic ways. Take a deeper read here on a lightweight JTBD framework—broken down with real-world business examples—or skip straight to the templates. 3. PROFIT MARGINS: Great Rule of thumb from CJ Gustafson at Mostly Metrics this week, who states, "Make sure your target model shows +25%" bottom line at scale." This Rule is excellent for a number of reasons: It demonstrates a sustainable business model (not just a business with a revenue model), you can still plow 30% of revenue into sales and marketing, and you only need to grow 15% per year to achieve the Rule of 40% (see #1 above). Keep reading the article; he also outlines a few businesses with varying profitability ranges. 4. AHA!: Not talking about the Band. Take a look at this great read on product design centered on discovery - what the author references as "Aha moments" - through a customer journey from first encounters through to deep adoption that really focuses on the concept of long-term retention. Go-Practice has a great complimentary article on how to design for Aha (with examples). 5. CLOUD 100: Bessemer Ventures/Forbes created a "Cloud 100" list a few years back, an annual ranking of the world's top private cloud companies in its ninth year. The 2024 list is out, and things had already started to look different last year with the first-ever drop in overall aggregate value. This year saw a bounce back to strong valuations (median valuation of $1.7B), with companies staying private for longer (but demonstrating sustainable growth at scale - see #3 above). These top cloud companies had a median ARR of $170M and multiples at 23x. FUN FACT: A former Bessemer Ventures Alum just won 2 Olympic Gold Medals for the U.S. in Cycling after picking up a bike for the first time in 2017. 6. VENTURE 1: Last month, according to Crunchbase, VCs invested $23B+ into startups, it's a slight dip from June but a 20% rise YoY. Healthcare and biotech led ($6B), while A.I. funding at $5.8B (but this doubled for Q2). A.I. companies are absent from billion-dollar acquisitions as tech giants are opting for strategic licensing instead for now (to bypass regulatory hurdles). 7. VENTURE 2: PitchBook just released its quarterly U.S. Valuations Report and, as reported last month, there are a bunch of mixed signals: Flat and down rounds hit a decade high; median valuation growth for early-stage A.I. is a whopping 115% (see #9 below), which probably helped the average early-stage valuations to nearly double from 2023 ($169m) 8. A.I.: Always lots going on, but are we in an A.I. bubble yet? (there is definite over-investment, but maybe not a bubble yet.). Here is an estimated breakdown of OpenAI's revenue (55% B2C, 21% from B2B, and 15% B2D). But Chat A.I. isn't at PMF yet, even though 70% of us use it all the time. 9. GLOOM BOOM: Andrew Chen makes the case that starting a company in a recession is super advantageous. There is less competition, lower costs, more focused investors, etc. Founders can build stronger, more sustainable businesses and also be positioned for serious success when the market recovers. 10. CASE STUDY: This article showcases Hootsuite's effective content repurposing strategy. By converting existing material into many diverse formats unique to different platforms, Hootsuite maximizes its reach efficiently. Proactive content repurposing is a great brand approach to helping Marketers with #3 above: sustained and capital-efficient engagement and reach. POD OF THE WEEK: A great podcast featuring Brian Halligan, co-founder and former CEO of HubSpot - consensus is the enemy of scale and other great snippets! 1. SaaS METRIC OF THE WEEK: CARR - Contracted Annual Recurring Revenue. This is a forward-looking SaaS revenue metric that estimates the maximum revenue size of a SaaS company, measuring current recurring revenue from your SaaS P&L and future revenue that sits in newly won customer contracts.
2. AGILE MARKETING: Hold on to your hats, Marketers - Agile processes are coming for ya! This is another one for our Tech Dictionaries - it's how to really validate learnings, make mistakes, and deliver impactful results. Hubspot covers this concept in detail and outlines how DoorDash hardcore-leveraged this methodology to increase revenues from $885m to $2.89 billion in a YEAR! 3. MARKETS 1/2: Earlier this year (see #8 here), Sapphire Ventures released their State of the SaaS Capital Markets report. They are now back with a mid-year update to see how some of their SaaS Market prediction (both public and private) are holding up. Flat and down rounds, Investments in AI, Unicorn creation slow down, and Efficient growth are all things that are tracking well. But a measurable increase in multiples, the re-emergence of Growth Mindsets, VC funding growth, and IPOs are things they either got wrong, or it's still too early to tell - great read! 4. MARKETS 2/2: Also, take a read of the full report; there are some other metrics of note in there outside of Sapphire Ventures predictions: Growth has fallen to 13% average, this is the lowest rate on record. But funding is on track to surpass 2023 levels - all driven by substantial AI investments. There was also a 21% increase in M&A compared to last year, with significant SMB deals - consolidation trend? 5. CYBER/CLOUD: With all kinds of outage drama happening lately, it's time to hammer this home: Regardless of the size of your SaaS business, security and redundancy should be part of your dev cycle, but know your weak spots well. 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 port-portmanteau, or is that SecDevOps? Heavybit has a great article discussing cloud security challenges (as apparently, if we extrapolate this data from #4 above, 88% of SaaS is now sitting on public cloud). This infographic from Genuine Impact shows how that is distributed in Public Cloud, with Amazon's AWS (and specifically US-East-1) taking on the brunt of that. 6. DEATH (of the internet kind): This post from Noah Smith explores historical trends, current challenges, and future opportunities in the internet sector - insightful stuff to lull on. Despite recent downturns, the long-term potential remains strong, driven by ongoing innovations and shifting market dynamics. 7. HOMEPAGES: IS your homepage a barrier? This article makes the case that it quite possibly is (as potential users want to get their hands on the end product as quickly as possible) - it's a time to value play across PLG and classic Sales lead SaaS. 8. DEV-REL: Dev Relationships are a real things. Developer happiness (and corresponding productivity) are important to measure. There are two primary frameworks for measuring developer productivity: DORA (also the GitLab source) and SPACE - a more holistic framework for productivity. And guess what - we're terrible at it because, according to this new Stack Overflow survey, the majority of developers hate their jobs. And it's not because of AI. It's old-school failed expectations and technical debt. 9. CONTRADICTION: Point Nine Capital discusses the importance of embracing contradictions in business and also uses one of my new favorite phrases, "Startup Advice Industrial Complex". Startup Leaders should balance conflicting priorities, such as growth vs. profitability and innovation vs. stability, to drive success. In theory, understanding and managing these paradoxes should lead to more resilient and adaptable companies (and teams). 10. CASE STUDY: Do your profit margins need a tweak? Here are 40 strategies for improving your profit margins from Sameer Dholakia, with a case study on SendGrid (from high burn to growth and IPO). POD OF THE WEEK: Lessons from product scale guru Brian Tolkin on scaling Uber and Opendoor. 1. SaaS METRIC OF THE WEEK: CLV. How far out should you calculate your customer's lifetime: two years, three years, five years? It turns out that the shape of the decay curve matters, as does the maximum customer lifetime.
2. ESOP: Employee Share Option Plans are a wonderful idea to incentivize and retain great staff, but under the hood, ESOPs are complex, especially with changing valuations, both positive and negative, in today's market. Check out Airtree Venture's best practices for communicating the value of ESOP to teams. This article also has a bonus financial model template (value calculator, salary package calculator, and vesting schedule). Check this cheat sheet for common ESOP terms. 3. ESOP BENCHMARKS: A fast follow from above is this wonderful site that has compiled a set of Option benchmark data comprising over 20,000 option grants from more than 1,650 startups across the US and Europe sorted by Seed or Venture stage. Carta has also recently done the math and found that for seed-stage valuations ($1M to $10M), the median pool size is 12.9% 4. UNDERSELL: If expansion fits into your growth strategy (it should), take a read of Tomasz Tunguz and Bill Binch's two-part series. Part one is about 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 that details how to structure a Startup sales team for optimal land-and-expand. 5. OUTAGES: Since the Crowdstrike incident (who are now being sued for half a Billion by Delta Airlines), we have now had two more major outages this week, one from AWS (which impacted Xero at end of month, and the like) and yesterday from Microsoft, which took out most of their products for about 10 hours. This will heavily impact Cloud/SaaS providers' trust as businesses fully realize their cloud dependency and rethink their tech stack strategies. Now is an excellent time to front-foot your architecture. For techies, Google actually has a great article on architecting disaster recovery for cloud infrastructure outages; here is a good DR Plan article and a good template. 6. PRICING PAGES: Check this article from MKT1 on why a plans and pricing page on your website is necessary. This is a great article from Chart Mogul outlining why pricing is the centerpiece of any startup/growth company's monetization strategy. They reviewed over 600 pricing pages to gather best practices on how startups communicate their monetization strategy, starting with Should you list your pricing? How many plans? Free Trials, all with great case studies. 7. DATA PRIVACY: Tracking and personalization have historically been a big part of marketing efforts via tracking Cookies. But regional legislation (such as GDPR and CCPA) and the death of Third Party cookies have changed everything. But Google has given up on killing Cookies, which they have talked about doing since 2019. Remarkably, they plan to keep third-party cookies and "introduce a new experience in Chrome that lets people make an informed choice" - some kinda Cookie opt-in thingy. Indiehacker dives deep into how to track users ethically. 8. SEARCH: I gave a talk on AI last week that brought up the idea of the demise of Google as a Verb (I Google less due to LLMs, which are often more efficient at solving my problems than a Google search), OpenAI followed my lead this week with the announcement of SearchGPT, something that ARC Search has been doing for a while (and I like). BTW - this shit is expensive, with OpenAI looking to burn about $5B this year (yes, Billion). On this news, Microsoft also announced that it's testing a Bing generative search experience. 9. SAFE NOTES: Oh - here are some great data points! Carta ran some numbers this week on SAFE notes, looking at how much is sold in a SAFE round. <$500k is about 7%, up to $1m is 11%-ish, $1-$2.5m is about 16.5%, and $2.5m -$5m (whoopers of SAFE rounds) are 21.4% 10. CASE STUDY: Pricing Pages (see #6 for more)! MKT1 reviews some pricing pages from Count, Klaviyo, and Lattice and here are 13 more from The Good. POD OF THE WEEK: From SaaStock, Tim Schumacher, co-founder of saas.group, shares his insights on exiting your SaaS business. 1. SaaS METRIC OF THE WEEK: MRR: According to this article, there are only five types of MRR growth that hinge on expansion and reactivation. Chartmogul takes a more emotional approach to MRR segmenting (new, happy, and at risk). MRR is a simple concept until you actually need to compute it. Benchmark your MRR here.
2. MARKETING: There are many marketing strategies organizations can deploy that are relevant to their line of business and target audiences, from pay-per-click to content marketing. Bloom lists the differences between the three main categories. Cutting to the chase, though, creating a solid marketing strategy is no walk in the park, so look here at how to make a solid one in 7 steps. (BTW - benchmarking budget - Marketing teams spend 5-10% of a company's ARR). 3. 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. 4. INDUSTRY: Public software markets saw some sharp declines last month, and according to Tomasz Tunguz, it was all due to declining revenues. Growth rates for many public tech companies have halved in the past 18-24 months (even though revenue increased from $124B to $592B. Giants like Salesforce face growth challenges, but private market data still shows strong potential. 5. SALES: Do technical products need a different sales process than traditional enterprise SaaS products? Check out this guide on Tech SDRs. Understanding developer needs is key for these reps to selling DevTools efficiently. 6. VESTING: Different companies have different vesting schedules to align employee incentives with long-term goals and retention. Levels.fyi explores some different strategies, highlighting approaches like front-loaded, milestone-based, and retention-focused plans. 7. PITCH DECK: Another pitch deck resource this month from Alexander Jarvis, who hosts almost 540 of them (and 10,000 pages)! The cool feature here is that you can search/filter startup decks by stage, topic, and country. 8. RED QUEEN EFFECT: I'm running my first presentation on AI this week, and during my research, I came across this great article from Clouded Judgement talking about AI and its impacts. The Red Queen Effect analogy was used, referencing Lewis Carroll's "Through the Looking-Glass," where the Red Queen says, "It takes all the running you can do, to keep in the same place." I couldn't agree more, and neither can the 85%-ish of B2B SaaS companies currently building AI into their product sets. Businesses must constantly invest and evolve to stay competitive. Immediate benefits may not be clear, but long-term gains in efficiency, innovation, and market relevance are highly likely. The potential downsides to not doing all the running you can do are massive. 9. DISASTER: If you were not sleeping under an IT rock last weekend, you probably noticed that many Tech Workers had a VERY insane week fixing a massive global Windows outage caused by just one publicly traded SaaS Company, Cloudstrike. From many accounts, it was a total shit show of anti-malware malware that poor or ill-prepared Business Continuity Plans, lack of redundancy, and risk management compounded. This was the real Y2K, 25 years late, and today is the second-best day (the best being before last weekend) to revisit your BCPs; check GitLab's BCP for an example of a real one. Here are some teachable lessons for all of us. Ironically, Crowdstrike has a great incident response checklist. 10. CASE STUDY: Reaching 100 users in four weeks? I'm in! This is actually a great, soon-to-be 3-part series on growth, with this first part focusing on the cold-start problem of going from 0 to 1000 users. POD OF THE WEEK: Building a world-class data org from Jessica Lachs of Doordash. 1. SaaS METRIC OF THE WEEK: Renewal rate: You have to scroll down to the bottom of this article before you get to the informative bit on measuring this metric (I could also link you to this one). But please read the first part, too - it's great. TL;DR: Don't be a jerk when it comes to renewals. If you have to be, maybe it's you, not your customers (and then keep scrolling again to see the five main reasons why people unsubscribe). This additional article from Profitwell on Renewal Rates also describes the differences between retention and renewals.
2. COMMAND: This is always a much-needed read. Being 'in command' of your business doesn't mean you're in control, and that's OK—it involves proactive, agile leadership that drives change, acknowledges challenges, and seeks solutions, ensuring autonomy and accountability for success. 3. VALUATIONS: Wait - what now??? According to some Pitchbook data fresh from the press last week, early and late-stage VC deals (so not Seed or pre-seed) valuations in the U.S. reached all-time highs in H1 2024. Sounds promising? Pinch of salt time though: it's date from much lower deal volumes of primarily strong companies. Right at the start of the article though, IVP's general partner, Tom Loverro, asserts that us startups that survived this period should shift from cash preservation to growth mode (did we not learn anything??). 4. INDUSTRY: What is Old is New Again. This is a great article reviewing Gergely Orosz's recent talk, in which he discusses the profound recent tech industry shifts and their impact on business strategies, software engineering, and layoffs. It all comes down to interest rates, IPOs, and VC funding changes that have reshaped the tech industry. 5. AI: This is a super interesting thread I wish wasn't just a Twitter post. I also agree with it and actually had a partially drafted essay on it, which motivated me to finish it. I was an original rack and stack infrastructure engineer, which all changed after virtualization and the public cloud. Engineers will not be replaced by AI, but so much day-to-day work is boilerplate that their roles, like mine, will be abstracted up toward design and outline. Why type when you can write? 6. SDRs 1 of 2: SDRs and AEs are putting in way more effort to get less results these days than in the past. It's hard out there. So, if you need to build out SDR teams in your business (see here if you should—you need to have a minimum $3- $4k ACV product), Bessemer Venture Partners has a great article on how to do this well. 7. SDRs 2 of 2: Benchmark time to compliment #6 above. Look at the 2023 SDR Bridge Group SDR Survey for great benchmark metrics, such as how long does it take for an SDR to ramp? (According to past studies, time to ramp for an SDR averages about 3.2 months.)? And how many calls does it take to book one meeting? What about SDRs: AE ratio? This article goes all out and pitches a Mendoza Line for sales reps based on value to the company (not just quotas). BONUS: SDR compensation calculator (Excel). 8. FUNDS: According to end-of-H1 data from Pitchbook, the global VC market continues on a downward spiral in fundraising, with what looks to be the lowest amount of capital raised since 2015. Pitchbook uses the word "Grim" to describe the market, which, of course, has big implications downstream for startups' access to capital. 9. GROWTH: ChartMogul reports further sluggish SaaS growth in H1 2024, with median growth rates at 23%-ish, compared to 30% in H1 2023, 46% for 2022, and 63% in 2021 (on the positive side, it seems to have flattened). Customer acquisition costs are rising (see #6 above), and churn rates have slightly improved. Economic uncertainty and market saturation are the two big factors still impacting growth. 10. CASE STUDY: Most of us should be so lucky to get to this stage, but how do you raise funds beyond Series B (roughly 15% that raise Seed make it to Series B)? Scale Ventures' Stacey Bishop gives the lowdown. POD OF THE WEEK: The YouTube presentation of #4 above. A review of the past 18 months has seen major changes reshape the entire tech industry almost overnight. 1. SaaS METRIC OF THE WEEK: People are the most important (and expensive) metric for any company, especially SaaS (yes, I would argue more important than the actual product). Revenue per FTE is one metric to measure when it comes to company efficiency via people efficiency, but a better one, perhaps, is the ROSE Metric (Return on SaaS Employees). This metric highlights the tradeoffs between headcount, recurring revenue, and EBITDA growth of a SaaS company.
2. HOMEPAGES: The never-ending quest to create the perfect homepage. While there's no such thing as a "perfect homepage," there are certainly best practices you can follow. This article breaks it all down and claims to be the ultimate guide. 3. GROWTH: This fantastic read by the team at Reforge argues that choosing between monetization and growth is a false dichotomy, suggesting businesses can successfully balance both for sustained, scalable success and also outline Growth as a system with three elements: acquisition, monetization, and retention. 4. CHARTS: This is a fun one. "Friends Don't Let Friends Make Bad Graphs" is a GitHub article outlining some good and bad practices in data visualization. It includes examples and explanations. 5. AI ADOPTION: Even though apparently 60% of us released GenAI features last year (see #3 in last week's newsletter), Tomasz Tunguz notes that AI adoption remains slow in some areas. (Opportunity time?) Security, legal complexities, and meeting procurement standards seem to be the top reasons! 6. GTM DATA: I needed this over the past two weeks. GTM partners have a really pragmatic article covering essential metrics and KPIs for your go-to-market strategy (at different stages), covering inbound, outbound, PLG, partner, community, and event-led growth. After all, you can't manage what you can't measure. It has scorecard templates, too! 7. VERTICAL SAAS: Many Big Tech companies are under threat from narrowly focused SaaS companies taking market share in niche areas and building massive businesses. Check the difference between vertical and horizontal SaaS here, and then take a look at how these vertical SaaS companies are taking market share from those cloud giants and how AI and Vertical SaaS are the outliers to achieving solid growth in this current market. 8. GROWTH: Dealroom explores the traits of top-tier SaaS startups, focusing on growth rates, unit economics (my new fav is Revenue per employee broken down by company size - see #1), and retention. Key factors include innovative products, efficient sales models, and scalability. 9. DILUTION: This is a fantastic Chart from Carta: How much equity dilution is normal? At the Seed and Series A stage, businesses usually see around 20% equity dilution. At later stages (Series C-D), dilution drops to ~10% per round. 10. CASE STUDY: Adding onto #7 above, some learnings on Vertical SaaS from Toast & Procore. Includes the importance of industry-specific solutions, seamless integration, and focusing on customer needs POD OF THE WEEK: Funnel and revenue math, kindly explained by Mark Roberge and Matt Plank of Rippling in the Science of Scaling podcast. 1. SaaS METRIC OF THE WEEK: We all know the core SaaS Metrics - CAC, LTV:CAC, ACV etc, etc. But Kyle Poyar from OpenView Partners is making the case for the next era of core metrics. With product lead, expansion, and margin profiles (such as ARR per FTE) being at the core of this new potential playbook.
2. SEED: Too raise or not to raise that is the question most often asked at the Seed stage. Peter Walker of Carta posits that founders should not raise a small seed round. He reviewed 4,000+ software startups and concluded (with a bunch of caveats) that small seed rounds have a lower probability of getting to a Series A in under two years. 3. CAPITAL: Last week, liquidity posts were popular - so here is some more data. Emergence has released a report titled "Beyond Benchmarks 2024," packed with data from B2B startups (60% of which released GenAI features last year). At the early stage ($1m-$5m ARR), top startups are growing 100%, and the median is 53%. For companies $5m-$20m ARR, top quartile are growing 58% but the median is only growing at 29%. It gets really out of whack with companies at the $20m-$50m range. The top quartile is at 38%, but the bottom bunch is at -7% (yup, that's negative growth). 4. MULTIPLES: Dealroom has a great guide on multiples with in-depth reviews of valuation multiples for public companies, VC rounds, and exits. These multiples vary by stage, sector, and geography, with a big focus on growth and profitability. The guide also explains methodologies for calculating and interpreting these multiples, providing a comprehensive resource for understanding company valuations. 5. CHURN (AI): Bessemer Venture Partners has a good guide for B2B and B2C AI apps with seven strategies to reduce churn, from enhancing user onboarding to leveraging AI-driven insights for customer retention (B2C AI apps are showing weaker long-term retention rates compared to standard app churn rates). 6. LANDING PAGES: Want to get better at creating effective landing pages? Scrapbook's SaaS landing page optimization checklist provides a guide to creating compelling headlines, using high-quality visuals, optimizing for mobile, indexing, and, of-course, using include strong CTAs to boost conversions. BONUS: How to write killer CTAs. 7. STATE OF THE CLOUD 1: The Bessemer Ventures State of the Cloud Report is out. It's packed full of highlights and well worth taking a deeper look at. But here are some highlights: AI is transforming the cloud, but concentrated at the model layer. AI investments have soared, and now every cloud company is, at some level, an AI company. We're certainly all more efficient at building, apparently. 8. STATE OF THE CLOUD 2: The consumer cloud sector is experiencing a resurgence (see the other Bessemer post at #5 above), driven by new innovative AI applications. This trend signals a revitalized market with new opportunities for growth and investment. 9. STATE OF THE CLOUD 3: The AI wars are well underway, and Big Tech's investment in AI is setting the stage for a major tech battle. All of the Big Tech companies are seeing big rebounds to "normal" multiples (along with big outliers like NVIDIA at 22x) and also on AI-quisition burns. 10. CASE STUDY: Three well-known SaaS success stories with very diverse paths, strategies (and financial health). Monday.com has robust revenue growth and solid free cash flow (also in scale-up mode). Atlassian is more established, with capital-efficient growth and high profitability. Despite strong revenue growth and being around forever, Asana struggles with high cash burn. POD OF THE WEEK: Dario Amodei, CEO of AI company Anthropic, talks about the amount of compute used in training (compute costs for models have been increasing ~4x a year). Dario is also predicting $1 billion and even $10 billion training runs soon! 1. SaaS METRIC OF THE WEEK: Margins by Revenue Stream. Understanding gross margins by revenue stream is crucial for a) SaaS profitability and b) Figuring out what products/features work and what don't. Check out the SaaS CFO's article on proper revenue stream accounting and a detailed SaaS P&L setup to enable accurate margin analysis across your revenue streams. Best-in-class SaaS gross margin for revenue is 80% as your reference point.
2. AI-OPS: This proposed AI infrastructure roadmap from Bessemer discusses the evolving AI infrastructure landscape, highlighting advancements in model scaling, deployment, DataOps, and observability. Key trends include purpose-built AI tools, novel model architectures, and integrated data management solutions, indicating significant opportunities for startups in the AI infrastructure space. 3. LIQUIDITY: As noted by the Wall Street Journal (paywall) and nicely summarized by Jason Lemkin at SaaStr, one of the paths to founder liquidity, the Private Equity folks, have their own liquidity problem. Cash for them (via M&A and IPOs) is down a lot, down 50% from the 10-year average. Some are even being forced to take out loans. This has massive downflow effects as it impacts and stresses funding availability for startups seeking investments. This is a bigger chicken and egg issue, with fewer exits and lower valuations, there are liquidity freezes across the industry affecting founder secondary sales, IPOs, and M&A activity. The reduction in IPOs and M&A activity results in fewer exits, lower valuations, etc., etc. 4. STARTUPS REPORT: The Global Startup Ecosystem Report for 2024 was released earlier this month. At a whopping 307 pages, it's one of the most comprehensive annual global startup reports (or editors maybe took the day off). TL;DR: Despite global GDP growth and signs of easing inflation, the tech winter persists. Series A funding fell by 46% (2023), and the slowdown in exits at the start of 2022 has locked in financial and human capital (see #3 above). 5. COMPENSATION: Links to reports on Founder Compensation are very popular in this newsletter, so it's great when you get some downstream questions also answered with this LinkedIn post from Carta listing what the first ten employees at a startup make on average (in terms of equity compensation). 6. BOTTOMS UP: Bottoms-up adoption is hard to crack😉 (learn more about the bottoms-up model here). For example, according to Gergely Orosz, Hashcorp has 4,300 customers in total, but only ~800 of them generate 90% of their annual revenue. Here is how to forecast. 7. USAGE: Most SaaS companies pay other SaaS companies to build their SaaS company. So Productiv's 2024 State of SaaS Usage report reveals helpful key trends in SaaS app usage for our SaaS Ponzi Schemes. Highlights: There is a 30% app usage increase and a 20% rise in costs, but 50% of these apps are underutilized. 8. PRICING: As mentioned in last week's post on pricing, AI-based products will disrupt traditional seat-based pricing further. AI product value aligns way more with usage than seat count, and Pricing AI products is complex due to unit-based costs (see #1 above on revenue margins to sort that out for you). Key challenges include determining units (requests, tokens), setting tiers (model vs. subscription), and implementing terms (prepayment, threshold billing). This all needs a robust billing framework to manage it. 9. POSITIONING: I've had this discussion with founders a couple of times this week. Positioning can be tricky, but it's a total Moat! Check this guide from MKT1; differentiate your product clearly without getting bogged down in details. Focus on who it's for, what it is, and why it's better. 10. CASE STUDY: Testimonials! Social proof is a massive factor for conversion attribution, and testimonials are the best kind (outside of case studies). Check out this list of testimonial examples from Hotjar, Whereby, Podia, Unbounce, and Memberstack. POD OF THE WEEK: Lessons on building products inside Atlassian from Tanguy Crusson, Head of Jira Product Discovery. 1. SaaS METRIC OF THE WEEK: VALUE-BASED PRICING: VBP is a tough nut to crack as it makes the most of what the maximum cost is that 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 pretty good guide on what this means (with examples), and Paddle/Profitwell has a complete guide on making it happen (and explaining how to go about calculating/measuring it).
2. SALES COMP (PLG): Figuring out the right sales comp and plan is super tricky for high-growth companies and it gets even trickier for companies that have PLG + Sales. So check this guide on PLG Comp Plans from the team over at OpenView. 3. AI SPEND: It's estimated that B2B companies are spending $15B annually on generative AI applications right now, which equates to about 1% of all IT spending. We all know that number is only going to go up. 4. PROMPTFRAMES: A new term for all of our tech dictionaries. Promptframes are the AI version of Wireframes for UX designers and provide structured instructions to guide AI interactions, hopefully ensuring better outcomes and user experiences. 5. FAILING: I think that this is a skill. Successful failure is an oxymoron that requires a culture of safety and permission to be wrong. Tall Poppy doesn't help that out. Many organizations look to best failure 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 within a business. 6. ONBOARDING: Doing this well is key to increasing value, lowering churn, and being a PLG growth-driven business - aligning the product value with user goals is key! Check this onboarding guide from Userpilot, look at employing some diverse tools and channels, and focus on smooth user transitions - all good for enhancing retention and engagement. This Substack article also highlights the importance of what needs to be under the hood - good data analytics, conducting experiments, and building a community centered around the product. 7. PITCH: Want to compare how your Pitch Deck compares to others? Here is an absolute MEGA resource of links for you (and your pitch team). Pitches from AirBnB, Uber, Shopify, lesser-known startups, and famous flameouts (such as Fyre) can be found on Billion-Dollar Pitch Decks and Pitch Deck Hunt. A cool approach from OpenDeck lets you search by Category/funding year. If you want to see a breakdown/analysis of pitch decks, then look over at Alexander Jarvis - he has over 500 decks broken down by the good and the bad. 8. SEAT-BASED PRICING: Clouded Judgement asking the big questions - is the traditional seat-based pricing model dead? PLG models have already signaled the decline of seat-based pricing in SaaS (as it can seriously impact growth), but AI-based products may likely disrupt this further; the product value aligns way more with usage than user count. More akin to database software pricing, which emphasizes data architecture usage over user access. 9. GROWTH: ChartMogul has just released its SaaS Growth Report, which compares Bootstrapped vs. VC-backed startups' growth metrics. TL;DR Bootstrapped SaaS companies adapt faster to market changes but grow slower than VC-backed firms, which initially thrive but struggle more in downturns. Both rely on expansion for growth, but bootstrapped firms maintain steadier retention rates. 10. CASE STUDY: From the team at product led and complimenting #6 above, here are 36 best user onboarding examples from analyzing 150+ companies POD OF THE WEEK: Following on from #7, Hiten Shah does a master class on How to pitch your startup. Providing founders with an investor perspective, the impression they'd get, and the questions they'd likely face. 1. SaaS METRIC OF THE WEEK: Multiples. Valuation multiples are so important for determining a company's worth. But they also seem so mysterious as they vary wildly based on growth stage, industry, and deal size. Dealroom has published a new multiples valuation guide with some great visuals and charts to help us all understand this mysterious metric better and also make data-driven decisions.
2. PRODUCTS: Balancing the needs of existing vs new customers is a hard product act to balance and that push and pull is nicely described in this article with some great analogies and tips on how to influence the product roadmap. 3. DIFFERENTIATION: This is a tricky question founders get asked all the time. Standing out in a saturated sea of SaaS is a tricky problem to solve - pro-tip - never do it on price alone. So ask yourself, "Why should someone buy from you?" It requires balancing familiarity and differentiation. Read this article to get you thinking about the topic more. 4. AI: Never first to market but traditionally excellent at execution, Apple introduced us to "Apple Intelligence" this week, its own generative AI system designed for pretty much the whole lineup - powered by ChatGPT! The stock popped to an all-time high on Wednesday. Because this is the AI -Wars, Elon really didn't like the news and immediately threatened to ban any Apple Device in his companies, including visitors - lol. Then, the next day, he withdrew his lawsuit against OpenAI (no reasons given yet). 5. AI VOICE: With the release of ChatGPT4o, AI Voice seems to have reached a mass audience. I talk to my ChatGPT phone app daily. Hot on the heels of that, A16z released their thesis on the AI Voice stack (highlighting Play.ai as one of the leading full-stack players, the ChatGPT of voice)—you can view the thesis via their Gamma AI presentation app here. AI voice agents are transforming phone interactions, and there are some promising applications across various sectors. 6. SPVs: One for your tech dictionaries. Special purpose vehicles, or SPVs, are where multiple parties pool their money to share an allocation of a single company. And because AI is so frothy right now and small investors can't invest directly, they can only buy via SPVs (which are risky and have high fees). 7. COMPENSATION: I see a founder compensation report, and I list it. (Don't forget about the TechCrunch article from last year that recommended that founders pay themselves rather than doing it for the equity.) So how much? Take a read of this US-centric Founder Salary Report from Pilot. TLDR, the median amount is $132K, the average is $142, and for pre-seed companies, that median is closer to $100K. 8. VALUATIONS: If you are ready for a long read extending off of #1 this week, this one is for you on Startup valuations with a VC lens. It's a very detailed article on startup risk and how these risks factor into how VCs underwrite their valuation decisions. For any startup operators, this article is a gold mine of insights into securing stage-by-stage financing, validating go-to-market hypotheses, and focusing on building strong teams to help address those underwriting risks. 9. INDUSTRY: ChartMogul's May Benchmark data is out and shows that growth mirrored April (as in, we're still at the "it's not getting worse" phase). Growth rates remain steady. But drilling deeper reveals some potential positivity (or rather not-negativity): Retention rates remain steady at 63%, and certain ARR and ARPA bands saw some improvements. We need to check in for next month to see if these persist. 10. CASE STUDY: GROWTH HACKS. This is a fun case study of unethical growth hacks used by Startups in their early days. Starring Uber (and their legendary Greyball System, and if you haven't watched the TV show yet, I highly recommend SuperPumped), Reddit, YouTube, Facebook, and OpenAI. POD OF THE WEEK: Here is a deep dive with Harry Stebbings and Jason Lemkin into seed investing (where things are expensive and limited with a broken pipeline to IPO). 1. SaaS METRIC OF THE WEEK: Net Dollar Retention is an important metric in product-led growth and consumption-based operations. It helps 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, and Tomasz Tunguz looks at what it takes to achieve 200% NDR!
2. M&A: Navigating some kind of acquisition process is a relatively unexplored topic in this newsletter, so check this guide to running an M&A process as a Founder from First Round Review. 3. FUNDRAISING: Carta has a great LinkedIn post that provides a snapshot of the key fundraising metrics from the last quarter. Benchmark yourself! Pre-money valuations for rounds held steady for Seed and Series A, with slight median growth for Series B and C and an upward trend in total amounts raised across most stages. 4. MARKETING: Enterprise Marketing is difficult, and the fun part is that it's getting increasingly harder, yay. 42agency has a great article with 10 different Enterprise Marketing playbooks for you to review. They also introduced me to a new app, Clay, which looks to be a super useful tool (but a little pricey). 5. AI: Adoption is ramping in many areas; 4 in 10 e-commerce marketers use AI for customer service and support, and Andrew Chen notes many more use cases. McKinsey also notes that businesses that adopt AI are seeing benefits like cost reduction and revenue growth. 6. SUPERCYCLES: This is a genuinely great read IMO and one that dives deep and also makes the claim that the first golden age of SaaS is decidedly over, as it's the dawn of AI-SaaS (hard agree from me) and tying it all back to capex/opex cycles and now CPU/GPU cycles (and their commoditization). But there is a lot to absorb here; to me, it's a more-than-one-read-through article. 7. FAILURE: It's a common tech-ism that innovation needs a lot of failure before success, something businesses often do not culturally configure. CB Insights has analyzed almost 500 startup failure postmortems - PMF, Cash, and Team Dynamics (see #9 in last week's newsletter!) play pretty consistent roles across the board. 8. TESTING: According to ZipDo Essential A/B Testing Statistics, 70% of marketers believe that A/B testing is essential to boost conversion rates. When running A/B tests, get started with this refresher and then this Step-by-Step Guide. Go Practice has some great advice on how to make these experiments run faster, too. 9. SENTIMENT: The Clouded Judgement Substack is always full of really interesting data. This week is all about sentiment and the current sentiment in the software industry is not looking great. This is mainly due to disappointing Q1 earnings and lowered Q2 guidance (70% of companies are guiding a below-expected Q2). The biggest issue is that growth has slowed, making revenue multiples less relevant as a valuation metric. Investments in AI are causing additional traditional software apathy, and interest rates continue to add pressure to valuations. 10. CASE STUDY: Building AI features is a risky move, as, realistically, you can't know the quality of an AI response without building the system to see an actual AI response. So check out this great case study from dopt.com, which makes the mind-bending observation that "you must build AI to learn what AI is valuable to build." POD OF THE WEEK: Lenny of Lenny'sLenny's Newsletter interviews Cameron Adams, co-founder and chief product officer of Canva, who now have 150 MAU in more than 190 countries, and $2.3 billion ARR (and ready to IPO next year) 1. SaaS METRIC OF THE WEEK: Fundraising Metrics. Make your fundraising way less chaotic by getting these metrics dialed in. Unless you are pre-revenue, Investors will expect to see detailed ARR, CAC, LTV, retention rates, and engagement metrics. A strong data deck (or data room) can answer investors' questions and show a clear path to growth.
2. GROWTH LOOPS: Elena Verna (Head of Growth at Amplitude) gave a great presentation 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. Reforge has a recent article with some examples and feedback on how to put Growth Loops into action. 3. WEB: Super interesting read from The Pew Research Center: Digital Decay, a quarter of all pages that existed from 2013 to 2023 are now unreachable, with pages often deleted on otherwise functional websites. 4. INTELLECTUAL PROPERTY (AI): Historically, in the Tech World, many startups have been vulnerable to their competitors producing copycat technologies - looking at you Meta/Facebook. Generative AI raises newer questions on intellectual property – who owns AI-generated content, and who benefits? (Google AI search already has ads - gross!) This article from Benedict Evans delves into the complexities - looking at ownership, moral rights, and potential exploitation. 5. UN-SCALE: Sometimes, while building a repeatable scaleable business model, some un-scaleable things have to be done. This article highlights three specific non-scalable things sales teams should be doing right now. 6. INVESTMENT: Carta's "State of Markets Q1 2024 Report" is out with some quality insights critical for those of us looking to raise a round (or others of us planning our runway). Funding rounds are down by almost a third, and investors are being selective (if not AI, then solid growth potential and fiscal sustainability). In the Seed/Series A side of town, over 40% of funding was directed at bridge rounds, which I assume are VCs protecting their existing startups and funds. 7. PRICING: This is an excellent report from Vendr: The SaaS Trends Report for Q1 2024 (B2B only). You can compare quarters from Q1 2020 to now: Renewal ACV and Net New ACV (after a remarkable drop last year) remain flat, and buying life cycles are getting longer. Cybersecurity is the leader in new-category purchases. A cool feature at the top is that you can select and compare the category your SaaS may be in. 8. MARKETING: Hubspot continues to report on marketing data gathered via the platform with the State of Marketing report. TL;DR: Marketers focus on AI, with 77% saying AI helps create personalized content. In this business environment, efficiency, personalization, and innovative tools will drive marketing success in 2024. This other Hubspot page pulls some good stats. Again, TL;DR, the average landing page conversion rate is less than 10%, the average bounce rate is 37%, and the SEO click-through rate is 13%. 9. TEAM: Check this stat: VCs say startup success depends on your TEAM DYNAMICS (56% of them), then timing (12%), and tech (9%). Tech sector likes teams more (64%) than healthcare (42%). 10. CASE STUDY: Notion is a great product, and notably, to me, they also run some pretty impressive marketing tricks. First Round Capital agrees and has a great case study on their different strategic layers of Marketing, especially with community. POD OF THE WEEK: From a16z: Metrics and mindsets for retention and engagement as marketplaces and other platforms evolve over time. |
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