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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: End of year is just around the corner - so it's Metric Review time. If you desire to build a data-driven organization in the new year, rigor and discipline have to be built around it. Sachin Rekhi's article discusses why metrics reviews should matter (TL;DR decision-making, inspection, intuition).
2. 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. 3. P&L + COGS: SaaS P&Ls are structured in specific ways, as defining what goes into the cost of goods sold (COGS) section is essential. So, take a good read of what the SaaSCFO recommends to include for COGS and how to structure a SaaS P&L. According to the Author - 90% of them are structured incorrectly, 5% are close, and 5% are correct. 4. PUBLIC CLOUD: The three major providers — AWS, Azure, and GCP - remain dominant in the Public Cloud realm (65% combined as of Q2 23). Amazon's AWS remains, by quite a margin, the most widely used public cloud platform hogging about half of that 65%. Its cloud business has primarily driven Amazon's overall profits in recent years. In 2019, AWS was 50 percent of Amazon's operating profit, representing just 13 percent of total net sales. By the end of Q2 2023 it was 70%. 5. CYBER: With all kinds of cyber attacks happening lately, it's time to hammer this home: Regardless of the size of your SaaS business, for 2024, security should be part of your dev cycle, but also know your weak spots. Founder Institute discusses 6 points of vulnerability in a tech stack that may be a bit leaky. Security should be rolled up into the process - DevSecOps being the new port-portmanteau, or is that SecDevOps? Heavybit also has a great article discussing cloud security challenges (as apparently, if we extrapolate this data from #4 above, two-thirds of SaaS is now sitting on Public Cloud). 6. PRICING: Last week's Freemium post was popular. It's time to double down on pricing again this week with a featurette based on Paddle (aka Profitwell)'s 'State of SaaS Pricing in 2023' report. Some highlights for you: 94% of B2B SaaS firms update pricing yearly; The most common success metrics are average revenue per user (ARPU), 34%, followed by annual recurring revenue (ARR) - 18%; Free rules: premium-tier free trials dominate (44.2%), followed by freemium offers (18.7%). 7. DATA: Startups need to have a data-driven focus for growth. This article from ProductLed introduces the "Customer Scorecard" and highlights the power of a key metric, the "North Star" (see #1 above), to align team and user interests. 8. FAILURE: It's a common tech-ism in the tech industry that Innovation needs a lot of failure before success, something Startups and the industry often do not configure culturally. I agree from a design perspective - but this article also highlights that narratively, you should not glorify it - try to show a baseline of success (with good failures thrown in). 9. REPRESENTATION - VENTURE: <SIGH> Year to date, Women-founded startups raised 2.1% of the total capital invested in venture-backed startups in the US according to Pitchbook ($2.4B out of $125.85B ), which is ever so slightly higher than the 1.9% of all of 2022. If you think that is pathetic, read on - Black founders received just 0.13% of venture capital this Q, according to Crunchbase - $39.7 million out of $29.9 billion. This is a massive year-over-year drop (1.2% last year). 10. CASE STUDY: A continuation of #4 above - This case study covers the entire history of AWS and is a fun read - it also puts AWS's current ARR at $70B! POD OF THE WEEK: A mash-up of #1, #6, and #7 Sustainable growth in SaaS using data and pricing, with Paul Lynch, the CEO of Chargify. 1. SaaS METRIC OF THE WEEK: Usage-based pricing and MRR/ARR models are often mentally complex to compute collectively (I know this from experience), so this article was a sight for sore eyes earlier this week, discussing the mental mapping required from Annual to Monthly and Usage-Based Metrics (and introducing Implied ARR) from David Kellogg. A recent analysis of usage-based pricing from Bessemer Ventures is here to help you think about your own pricing models.
2. VERTICAL SAAS: A lot of Big Tech is threatened by narrowly focused SaaS companies taking market share in niche areas and building massive businesses (for example, Toast is currently valued at $10B +). Check the difference between vertical and horizontal SaaS here. Then, look at how these vertical SaaS companies are taking market share from those cloud giants and how AI may accelerate everything in Vertical SaaS even more. 3. VENTURE: According to a new report from Pitchbook - VC funds have hit a pretty significant low, -17% (that's a minus, not a hyphen), the worst in a decade. Downhill, this means that Firms will need more access to capital. Stability is forecasted for 2023, though, with generative AI as the promising focus. 4. 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. 5. DEVOPS: Google Cloud's DevOps Research and Assessment (DORA) team has just released their 2023 DevOps report. AI has yet to deliver substantial benefits to development teams - but in my experience, that is a lagging metric. Current key success factors for high-performing teams include user-focused development, rapid code reviews, and a high-trust culture. 6. CONTENT MARKETING: Mastering great content writing is a skill - and I've snagged an excellent guide for us all here on that topic; here is great info on how to plan a data-backed B2B content marketing strategy 7. FREEMIUM: Freemium is only sometimes the best pricing strategy for every SaaS startup. Beyond free trials and freemium models, you can give your users Opt-In Free Trials, Opt-Out Free Trials, Usage-Based Free Trials, Freemium, New Products, and Sandboxes. 8. -1 to 0: One for your tech-dictionaries and inspiration read when you need to think differently. In startup land, it's a tech-ism on "going from 0 to 1". But this article argues that we are missing a step - the "-1 to 0" stage is key. It's choosing your next decade's focus and replacing good ideas with great ones. 9. TECHNO OPTIMIST: Don't put away your tech dictionaries just yet - pencil this one in and save it for when you have time, as it's a longer form read to process. Andreessen Horowitz is back with a new, post-pandemic manifesto, 'The Techno-Optimist Manifesto.' Their Pandemic Manifesto was "Time to Build," this new one is an extension of that that argues against the current pessimistic view of technology, embracing it as a crucial driver of societal progress and solution to problems. It encourages fostering growth through technology, asserting that it's pivotal for overcoming challenges and improving human living standards. 10. CASE STUDY: Supabase's CTO discusses the company's unique "Launch Week" approach, emphasizing regular product updates and team autonomy. Integral to their Product-Led Growth strategy, this method has shifted the needle with their growth. POD OF THE WEEK: Beneficial for me - Modern Engineering Management with Russell Smith, co-founder and CTO at Rainforest QA. He discusses some core engineering management concepts essential for success in today's fast-paced, mainly remote, and highly competitive engineering environment. 1. SaaS METRIC OF THE WEEK: Retention. Chartmogul's SaaS Growth Trends in 2023 report notes that retention strategies are now considered growth strategies. And last year, Companies with best-in-class retention grew at least 1.8x faster than their peers. Check out this other great ChartMogul article that outlines how to calculate, benchmark, and track retention (along with some good ol' fashioned strategies).
2. MARKET SIZING: The dreaded slide on everyone's pitch deck that is required to outline their business model and pricing. It's a Tech-ism that if the market is not huge, same with your startup. Understanding the nuances of TAM, TOM, and SOM is a great way to complete the slide, but get your TAM sorted first via this guide from Bling Capital on how to size a market (in 30 minutes!). Jason Lemkin has a great article on what to do if your TAM is too small for VCs. 3. VALUATIONS 1/2: How is it already Q4 2023? A first cut of Carta's State of Private Markets report for Q3 is out (PDF here): Valuations are on the rise or remain steady from Q2, particularly in Series D and E+ stages, although still below 2021 peaks. Median round sizes are mostly consistent, with notable growth at Series A. Q3 may show weaker venture activity than last Q; see below. 4. VALUATIONS 2/2: Take a deep read of this article from Janelle Teng, who does terrific work on valuations and the current disconnect between public and private markets. Carta's Q2 report painted a far from rosy picture of about a 1-in-5 raise being a down round. With rising down rounds and tougher fundraising conditions, demand vs supply for VC funding now sits at 2.9x (for late-stage startups) according to Pitchbook, which also estimates the current IPO backlog (just in the US) of 200 companies, which Bank of America estimates to be about ~$60B. 5. AI: This is kind of a "Valuations" addendum to the above posts. AI startups look to have snagged all the considerable valuations in Private Markets despite their current lack of revenues, as discussed by a recent panel at Tech Crunch Disrupt. Sequoia also recently published a great article on generative AIs showing rapid growth but poor retention. 6. MARKETING: With the '22/'23 move towards LeanOps and profitability, Marketers are facing increased expectations of optimizing spend-to-value to deliver profitable growth. According to this Gartner report, 75% of CMOs are now asked to do more with less. All marketers need to take a read - there is a significant need to optimize tech, align KPIs to business outcomes, and prioritize budgeting - because this is a triple whammy: Budgets are being reduced while marketing costs are rising, and returns are diminishing. 7. CRYPTO: It's been a while since I last mentioned anything Web3. AI has taken all of the energy out of Web3, and the crypto industry has fallen back to Q4 '20 levels ($2.1 B across 297 deals for Q3 2023) - over half of that still originates from US investors. 8. BAD DEVS: According to this survey from SauceLabs (provocatively titled "Developers Behaving Badly"), 67% admit to pushing code without testing. Amid 2023 layoffs, 70% used others' credentials to bypass security, and 75% avoided protocols - many of the issues lie in systemic pressures and unrealistic business expectations. 9. CLOUD 100: I referenced the Cloud100 a couple of months back, but the team at Bessemer Ventures always put on a good Cloud 100 show at SaaStr Annual each year, which happened last month. After a 50% drop in 2022 (they call the "SaaSacre"), BVP's Cloud Index rose 25%. Still, they note a move from rapid growth to profitability and efficiency (a 6:1 to 2:1 shift on revenue to valuation ratio). AI plays a pivotal role in this success. 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 an excellent brand approach to help Marketers with the 2023 challenges outlined in #6 above, sustained and capital-efficient engagement and reach. POD OF THE WEEK: This is the video version of #9 above - the Cloud 100 for 2023 from Bessemer Ventures from the SaaStr Annual conference. Always a great watch. 1. SaaS METRIC OF THE WEEK: CHURN: In this post, Lenny Rachitsky asks, "What is a good monthly churn for a SaaS business?". Zero is the obvious correct answer - but he took to a benchmarking exercise and sourced good data to develop this chart. For B2C SaaS: 3% - 5% churn is GOOD, and less than 2% is GREAT. For B2B SMB: 2.5% - 5% is GOOD, less than 1.5% is GREAT. For B2B Enterprise: 1% - 2% is GOOD, less than 0.5% is GREAT.
2. DEV TOOLS: Anna Debenham of Boldstart Ventures was given access to a subset of this year's raw data from OpenView's Product Benchmarks Report focusing on dev tools. The report reveals trends in dev-tool product-led growth strategies - 31% organic leads and increasing reliance on sales-generated leads. Conversion from site visitors to users is 10% (median), with varied activation rates depending on the product. The median 28-day retention rate is 23%, and conversion to a paid account is 5%. The article discusses a new entry for our Tech Dictionaries - a "sandwich model" strategy, combining product and sales for sustained growth. 3. FUNDING: One of the cool things to come out of the SaaStr Annual conference every year is the updates to the SaaS Funding Napkin from Point Nine Capital. 2023 has been a tough year - so it's great to finally get the in-depth dive into what it takes to raise capital in 2023 and the updated TL;DR napkin. You can also watch the SaaStr Annual 2023 presentation from last month here. 4. VENTURE: Last month's post about the SaaS IPO marketplace was popular, and I had a few responses debating whether the potential end of the IPO freeze is happening now. Well, guess what? It looks like it's not over yet. According to this article - VCs are advising their portfolio startups to postpone their IPO plans until the interest rates stabilize, but really a) Recent IPOs by Instacart and ARM were pretty low energy, and b) They want rates to drop, not stabilize. It's all about fund returns. 5. AI 1/2: Cynically, big tech companies are trying to moat out and win the AI space via lobbying and regulatory capture. 6. AI 2/2: According to this article and the full slideshow from Battery Ventures, despite the tech-spend turndown, 50% of enterprise buyers are expecting to increase their AI spending in the next 6 months, and 79% plan to deploy generative AI in the next year. 7. PRODUCT MANAGEMENT: Requires outstanding leadership - here are interviews with the Head of Growth at Reddit and the Head of Product at Twitter (pre "X") on creating a good vision and strategy, but quality Product Discovery is the hidden skill. This article leverages Slack and Dropbox examples, highlighting the importance of understanding market gaps and user needs with various techniques, such as reverse discovery, continuous discovery frameworks, and competitor analysis sprints, that can transform product leadership. 8. BENCHMARKS: Check this fun little Product Benchmarks calculator from OpenView (referenced in #2 above) that you can use to see how you compare to the 1,000+ B2B SaaS companies surveyed in our 2023 Product Benchmarks. 9. COLD OUTREACH: Cold email is still a go-to modern-day sales tool. Predictable Revenue has a PowerPoint deck for four pillars constituting a quality sales-based email campaign. Here is a 3-step guide to getting noticed by email, and finally, check out this "How to automate cold outreach motion" cheat sheet by Lucas Perret; it includes triggers and prompts. 10. CASE STUDY: 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. POD OF THE WEEK: Speaking of regulatory capture (#5 above), this is a super fun talk from the All In Summit (of All In Podcast fame) by Bill Gurley (of SuperPumped fame) about how regulation favors incumbents. |
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