1. SaaS METRIC OF THE WEEK: VALUE-BASED PRICING: Value-based pricing is a tough nut to crack as it makes the most of what the maximum cost customers would be willing to pay for a product or service - this means there is no magic guesswork or thumb-suck number. These prices need to be arrived at Empirically. Paddle.com has a good guide on what this means (with examples), and Paddle/Profitwell has a total guide on making it happen (and how to go about calculating/measuring it).
2. PRICING: This one is totally a follow-up to #1 above and is interesting as the author is pitching a new, better (gasp!) way to decide your product pricing. HINT: It's all about how you ask the question. And this variant on how to research and implement a value-based pricing model. 3. PRODUCT MARKET FIT: Oooof - another Startup-ism - More than 50% of the time, the lack of Product-Market Fit (PMF) factors into the reason a startup fails (keep reading this article, though as it goes through how StartupOS figured their PMF out). AirTree (an early-stage VC) has just published this article taking a look at what metrics VCs like them look at for signs of product-market fit, as well as what the red flags are. Also, this article has some great PMF definitions. PMF was called "the only thing that matters" to early-stage startups by Marc Andreessen 12 years ago. Now, his team gets more nuanced, suggesting focusing on product-user-fit as an indicator of achieving PMF. A similar nuance is also true post-PMF with repeatable-scalable revenue models as a precursor to a repeatable-scalable business model (you know - the one with actual profits). 4. OPEN SOURCE AI: Earlier this year, I posted a cool dashboard of the top open source projects by growth, retention, and usage. (It can be a little confusing, so here is a Substack article outlining the dashboard in more detail). This article is pitching why Open Source versions of AI models will win over the long term. 5. SALARY (Updated): Hey Founders, a TechCrunch article earlier this year recommended that founders pay themselves rather than doing it for the equity - after all, paying people is what Venture should be for, right? So the bigger question is how much? Unfortunately, this doesn't mean you get Market Rates. Startup founder's and CEO salaries can often range from zero to a gated raise based on ARR. See here for lots of good answers and also lots of different situations. Christoph Janz of Point Nine Capital has recently taken this a little further with a founder salary calculator based on European market research, so the amounts are in Euros. 6. TECHNOGRAPHIC: Add this doozy of a Portmanteau to your dictionaries and spell checker as it is the label for the Ponzi scheme of SaaS: How Many Technologies Can a Company Adopt at Once? Answer - there is always one more (JK, but not really). 7. GROWTH BENCHMARKS: Here are some excellent benchmarks for growth-stage startups from ICONIQ Capital (downloadable PDF). It is similar to the public market report I posted in last week's newsletter - topline performance reductions (ARR, NDR, etc.) Companies with less than $25M ARR should be shooting for 200%+ growth with $100K in ARR per employee! 8. PAYFAC: Crack open them Tech Dictionaries again: PayFac (or Payments Facilitator) is something I have implemented to create an additional (recurring) revenue line to the business, but it was only this week that I discovered a pre-existing portmanteau for that. Stripe has a good guide on bringing PayFac in-house, and here is a downloadable PDF on the same topic. Very low touch once it's up and running! 9. INTELLECTUAL PROPERTY (AI): Historically, in the Tech World, many startups have been vulnerable to their competitors producing copycat technologies - looking at you Meta/Facebook. Generative AI raises newer questions on intellectual property – who owns AI-generated content, and who benefits? This article from Benedict Evans delves into the complexities - looking at ownership, moral rights, and potential exploitation. 10. CASE STUDY: Many Startups discuss their early customer acquisition strategies. For the first 10, cold outreach, personal networks, and social media are key. By 100, word of mouth and platforms like Product Hunt/G2 gain momentum. Getting to 1,000, SEO, social media, and product dev take over. Many wish they'd explored untapped avenues sooner. POD OF THE WEEK: Complementing #1 and #2 above, in an episode of the SaaS Open Mic podcast from earlier this year, Marc Boscher, CEO and co-founder of Unito, discusses continuous pricing experimentation and strategies to ensure pricing migrations don't disrupt existing customers. 1. SaaS METRIC OF THE WEEK: Lead scoring is a well-established way of assigning numerical values to prospects so sales and marketing teams can optimize their funnels and convert faster - how does that work in a Product Lead World? This blog has all the answers.
2. MLP: For your tech dictionaries - that's Minimum Lovable Product. MVP (Minimum Viable Product) is OK, but what if no one likes it? FirstRound Capital uses the analogy of burnt pizza - pointing out that the fastest and cheapest functional prototype could produce a poor or flawed version of something that people may actually love. 3. VALIDATION: I'm sure you have heard repeatedly that validating a product is a make-or-break part of a startup's scale-up process, especially at teh early stage - but how do you do that properly? Check this list of techniques and tools (it all starts with Market Research) - and get more into that starting here (with free templates!) 4. PUBLIC SAAS: Meritech dives into the $2 trillion SaaS Public market, showing some pivotal shifts: Revenue multiples have dropped by up to 80% from the '21 highs (median multiple is 6.5x today), and a stark trend of trading growth for profitability and efficiency. NDR is also at an all-time low - 115% upsells and churn impacting that metric hard. 5. DATA PRIVACY: Tracking and personalization have historically been a big part of marketing efforts via tracking Cookies. However, regional legislation (such as GDPR) and the death of third-party cookies have changed everything. Indiehacker dives deep into how to track users ethically. What does that mean for personalization? Venturebeat dives into this topic and also looks at how marketing, in general, can be more private. 6. GOVERNANCE: Mark Suster (from Upfront Ventures) has a series on his Medium Blog covering StartUp Boards. With a follow-up article that shows a board structure based on stage! He also provides a blog post AND a 43-slide deck. 7. SDRs: A couple of weeks back, I got a prompt from a friend asking about SDRs, and I realized it has been a while since I have written much about them. In past long-form newsletters, I have referenced SDR metrics and quotas, and ICONIQ Capital has their 2023b Sales Compensation guide discussing SDR comp from earlier this year as well as the updated 2023 SDR Bridge Group SDR Survey - answering all the great benchmark metrics such as How much time does it take for an SDR to ramp up? And how many calls does it take to book one meeting? What about the SDR:AE ratio? This article goes all out and pitches a Mendoza Line for sales reps based on value to the company (not just quotas). BONUS: SDR compensation calculator (Excel). 8. EMPLOYEES: Here is a great question: How many employees should you have based on your ARR? In 2023, this answer may be much lower in our Leanops market, but my former big boss David Sacks has a great slide from his SaaStr presentation on optimal SaaS Org Charts (Full deck here) - Series A is 40-50 at 1m ARR. Yup, that's only $20-$25k ARR per employee - full report here, which expands into what roles you should hire and what the org chart looks like. 9. POC: Switching to proof of concept (POC) based paid trials is working well for me as part of our customer journey and is the fastest time-to-value metric we can deliver for various enterprise stakeholders. Want to get your POC up and running fast? The team at Work-Bench has a step-by-step framework AND a template of a POC Agreement for you here. 10. CASE STUDY: Airtable announced it would lay off about one-third of its team this week following a similar-sized round of layoffs back in December. This has prompted some online reviews of the business as Airtable is currently valued at $11.7B, and there are now some significant doubters (including Anand Sanwal of CBInsights) POD OF THE WEEK: Another from David Sacks, fresh out of this year's SaaStr Conference, covering what the future of SaaS may look like - lots of SaaS-AI, what it's gonna take to raise a Series A these days, and why Seed investing is currently not a good deal. 1. SaaS METRIC OF THE WEEK: Churn. See #6 and Pod of the Week for more on Churn in 2023. According to CatchJS, though, we're all calculating churn rates wrong. If you love Statistics, the article is well worth reading and it even gives some Python code to perform the more complicated probability-based equation they recommend. You can then check out this tool (as a handy Google Sheet) from Newfund to analyze the strength of revenue streams for any B2B startup. A complimentary article outlining the methodology behind the tool is here (and you should read it first). Then, dive into Bessemer's new article on how to fix the Churn leaky bucket.
2. PLG: (for complex products): While PLG may only fit a few enterprise players, there is hope. Companies are starting to apply PLG techniques in totally new settings - such as with complex products. 3. SMB: In general the Old SaaS-Skool guidance was to start chasing the biggest contract values as soon as possible (hello Enterprise!). However, according to Craft, newer school thinking is to focus on SMBs, as sales velocity is a better strategy than chasing contract size - and SMBs are plentiful. However - the downside of SaaS-for-SMB is discussed in this article from SaaStr - CHURN! BONUS: Linking 2 and 3 together here - Why SMB and Enterprise sales have nothing in common from Jason Lemkin. 4. ZERO-BASED DESIGN: Another concept for your dictionaries: Zero-based design has emerged as a potent approach for businesses to improve performance and redesign their products, services, and even organizations. McKinsey goes even deeper with a look at this from what they call Operations Practice. 5. AI: McKinsey's annual State of AI survey reveals the breakout adoption of generative AI: 30% of those surveyed indicated regular business use. Even though generative AI is on the rise, overall AI adoption remains steady with 40% planning an increase in AI spend. YC's new summer cohort is also 65%+ AI. 6. GENERATIVE AI: Adding a spin onto #5 above. Generative AI has seen success in B2C applications (like ChatGPT), but this article makes the case that Generative AI faces uphill challenges in B2B. Due to a lack of industry-specific data, it needs to be more accurate, outcome-focused, and in-depth. They pitch combining LLMs with proprietary data and human expertise to create practical B2B generative AI applications. 7. STATE OF SAAS: Profitwell is the King of data-driven content. Paddle acquired them last year, but the content coming out this year is still excellent. Paddle just launched Forward, their own little conference/product launch, and as part of this, they presented SaaS Market Conditions for 2023 based on data from the 34k companies on the Profitwell platform. The summary is here - but watch the Video (linked below in Pod of the Week) if you have the time (first 10 of a 30-ish minute presso). Growth is slower, PLG Tactics are everywhere(backing up #2 above), especially try-before-you-buy, and CAC is way up in mature markets (US, UK, etc.). 8. SALES: OK - who doesn't want this from their sales team? From Openview, here's how to increase sales by 33% without hiring more Reps: it's all about simplifying sales and protecting selling time. 9. BUDGETS and FINANCE - DEEP DIVE: A lot more of you than I expected clicked the Budget and Forecast links last week - so let me add one more to help with your Financial Year plans: Bessemer has a significant six-part "fundamentals of startup finance" series - Part 1 (goldilocks Budgets), Part 2 (Forecasts), Part 3 (Hiring), Part 4 (Growth and Profits), Part 5 (Pricing) and Part 6 (Metrics and benchmarks). 10. CASE STUDY: Intercom's Des Traynor and Fergal Reid share insights on leveraging AI language models (like GPT-4) to transform Intercom's SaaS products, highlighting the importance of low-risk problem selection and a centralized ML team. POD OF THE WEEK: Following on from #6 above. I tried to have this Video running in the background but had to pause everything else and give this start of this Video presentation my full attention - it's absolute solid data, but with some skippable Marketing thrown in. Winning new business from existing customers is becoming even more profitable than acquiring new business, but Churn is now at an all-time high, seriously eroding new business. 1. SaaS METRIC OF THE WEEK: SaaS METRIC OF THE WEEK: CLTV: This metric represents the average revenue that a customer generates before they churn - Customer Life Time Value. ChartMogul has a great online calculator here. Go to 'advanced mode' as this calculator references the traditional formula and the David Skok version (which is the advanced one but viewed as more realistic)... Check here for a thought-provoking read of why your LTV may be lower than you think.
2. GROWTH: ChartMogul's SaaS Growth Report is out and has some juicy insights on SaaS growth metrics. Quick peek: Growth is steadying (kind of good news - it's not shrinking), top-notch startups grow over 100% YoY, and here is one I haven't considered before - SaaS looks to be mildly seasonal (and corollary to budgets?) with Q1 being the best and Q4 the slowest. 3. BUDGETS: Speaking of annual budgets - for those who run calendar Financial Years - it's Budget/strategy planning time! It's time to get next year's budget drafted, circulated, revised, completed, and board approved! Don't panic. I have an article for you to read for that (it's a couple of years old but still prime) to better understand how businesses allocate their resources - it's based on interviews with over 600 SaaS startups. 4. FORECAST: This is a great article to get you to forecast your subscription growth better, shifting focus from immediate earnings to long-term revenue. It uses a great walk-through example emphasizing the importance of understanding retention rates. 5. IPO MARKET: Is the Public Market back for Tech/SaaS? I'm still calling a Q1 '24 return to "normal" (but fewer IPOs than the bonkers 1035 IPOs of '21), but Klaviyo just submitted their S1, joining ARM and Instacart. This is definitely a signal, and the Team at Genuine Impact also sees a potential AI-infused spike. Other VCs are not as convinced. Looking back to where we were pre-downturn, the average SaaS IPO took 12 years. It also took, on average, ten years to get to a $1B+ acquisition/exit in SaaS. 6. MULTIPLES: Adding more context to #4 above, Interest Rates and Forward Multiples are two significant considerations with Tech IPOs. Jamin Ball of Clouded Judgement runs the numbers deep in this post and notes that forward multiples are currently below the 10-year average (6x vs. 7.8x), BUT when adjusted to growth (because every software company has seen their growth slow down), current multiples are currently ~50% HIGHER than their long term average. Public valuations are technically still historically expensive. 7. PPG: Grab your tech dictionaries, everyone! I have another acronym for you: PPG, or People Powered Growth. This derivative of Product-led growth consists of a cross-functional team with customer-and non-customer-facing members. It's a People + Product partnership that develop and test solutions, searching for ways to scale human interactions/intervention with a product. Some examples of PPG companies are Drift, Dropbox, and Loom. 8. SALES: Looking to establish your first (non-PG) SaaS Sales Comp plan? So first, check this excellent report on the State of Startup Compensation from the team at Carta. They look into questions such as what makes up for the largest share of compensation spend, what roles get paid the most, and startups are still hiring remote workers (yes, remote hires now represent 62% of all new contracts). And then, read Jason Lemkin's post on constructing a framework for the first SaaS sales compensation plans. 9. MVSP: Here is one more for your tech dictionaries - this stands for Minimum Viable Secure Product. This is a simplified security checklist for B2B software and outsourcing providers. It outlines essential controls to ensure a minimal yet effective security posture. It's not quite the SOC/ISO/APRA level stuff I have to deal with - but it's great for those outside of Enterprise and Financial Services. 10. CASE STUDY: Check out how Vanta found product market fit, starting with signing up 600 customers without a website and totally solving their problem without first writing any code. You could also fast-forward to the timeline graphic version here. POD OF THE WEEK: Funnel and revenue math, kindly explained by Mark Roberge and Matt Plank of Rippling in the Science of Scaling podcast. |
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