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) |
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