1. SaaS METRIC OF THE WEEK: AI Metrics: This is a great one from David Kellogg, who recently presented at SaaS Metrics Palooza 2024 on "The Impact of AI on SaaS Metrics" slides in a PDF version here. The event he presented at is actually whacked full of good talks, so well worth the (somewhat weird) on demand replay you can get access to here.
2. PROFESSIONAL SERVICES: For a lot of us in the B2B SaaS world, we generate a significant amount of revenue from implementation and deployment projects, often captured as revenue from Professional Services. So check out Dave Kellogg's post called the Professional Services Paradox, where there are times when only a Startup can deliver the services needed to execute a transformation strategy. BTW - on average, Service Revenue as a percentage of Total Revenue caps out at 11%. Jason Lemkin notes that his perceived rough range is about 8-10%. Fun fact: The more professional services, the less churn. 3. STARTUP PLAYBOOK: Check out the Emerging Startup Playbook, which lays out eight key emerging strategies taken from high-growth SaaS leaders. Emphasizing "speed over perfection," it suggests streamlining decision-making and embracing usage-based pricing for sustainable growth. Key takeaways? Optimize product stickiness before scaling sales and pivot based on data to stay competitive. This is a great read for early-stage founders figuring out their growth tactics (well, more like experiments). 4. NCT: Crack open your tech dictionaries, I have a new acronym to lob your way. OKRs are old school. Ravi Mehta's NCT (Narrative, Commitments, Tasks) model simplifies goal setting. So instead of vague objectives, start with a clear Narrative explaining the "why" behind each goal. Next, set 3-5 measurable commitments for the quarter, with Tasks as actionable steps. The difference is that OKRs can be overly ambitious, but NCTs focus on achievable milestones that align closely with strategic priorities, more Agile in a way as course corrections are easier (and it increases team accountability). 5. VENTURE: The Q3 2024 Pitchbook-NVCA Venture Monitor is out, and VCs seem to have hit the 'bust' part of the boom and bust cycle. Limited exits and liquidity in the current VC ecosystem means that activity has fallen off a cliff - the number of active VC investors is down 62% from peak levels, and about 25% of active investors from last year have halted new investments. Mega deals seem to be propping it all up - as is the AI buzz. M&A is even worse off and has almost fully collapsed in 2023 and 2024. 6. EXITS: A fast follow from above. If you have or are raising funds at a high valuation - it's a double-edged sword. High valuations raise acquisition expectations, often requiring a 2x–3x return, which can limit exit options - doubly true in this market (see above). SaaStr points out that many startups must aim for IPO or risk stagnation if acquisitions don't materialize. PitchBook notes the current downtrend, with exit multiples and cash-on-cash returns seeing notable declines, highlighting the risks in this volatile exit market. 7. AI GOVERNANCE: The World Economic Forum has launched a well-thought-out paper on Governance in Generative AI. Core recommendations include setting clear guidelines for data transparency, ethics in model deployment, and ongoing monitoring for biases and unintended outcomes. 8. MARKETING: The MKT1 article I posted last month on how to measure what marketing activities are actually driving revenue was popular. So here is a follow-up to that (as a part of their Annual Planning Series for all of you at Fiscal/Calendar EOY planning stages) on how to prioritize marketing activities & avoid random acts of marketing ( I love that term). TL;DR: set clear goals, define your metrics, and create a focused strategy. But you need to read it as it's way more in-depth and step-by-step. 9. CONFLICT: David Kellogg's book ends this week's newsletter by suggesting we should design our businesses to surface essential conflicts. Instead of reducing conflicts, leaders should identify which ones add value and make sure they are heard. For example, separating Sales and Customer Success encourages transparency around upselling conflicts. By purposefully structuring teams, leaders can maintain productive tensions that drive growth and reduce irrelevant friction. 10. CASE STUDY: GROWTH HACKS. This is a fun case study of some of the infamous and unethical growth hacks used by Startups in their early days. It stars Reddit, YouTube, Facebook, OpenAI, and Uber (and their legendary Greyball System; if you haven't watched the TV show yet, I highly recommend SuperPumped). POD OF THE WEEK: From David Kellogg and Co: CARR, ARR, and the Impact of Usage-Based Pricing. Contracted Annual Recurring Revenue (CARR) and Annual Recurring Revenue (ARR) are commonly used terms in the SaaS and Cloud Industry but are not standardized, leading to inconsistent calculations. 1. SaaS METRIC OF THE WEEK: ARR - I have a whole book for you this week (an "Ultimate Guide," in fact) on ARR. Covers everything you need to know to define, build, and report on ARR from scratch based on experiences at Intercom, Atlassian, and Stripe. Bessemer Ventures also claims to have a founder's roadmap to $100 million ARR.
2. WEBSITE: Quick Question: "Do you think your Website is stressing out visitors"? Quick Answer: Probably. Read further on the WJTBD (Web Jobs to be Done) or TL;DR - remove the noise and focus on the jobs you need the website to do. 3. BENCHMARKS: Bookmark alert! I've got a bit of a benchmarks goldmine this week with the 2024 BenchmarkIT Report (all B2B SaaS), and it's pretty interactive (or snag the PDF here). Median growth for SaaS companies is 30%, and Net Revenue Retention (NRR) is at 105%. Median Customer Acquisition Cost (CAC) payback is 16 months! And here is one of my favorites—an average of $.69 per $1 of expansion revenue generated. 4. DEX: Crack open your tech dictionaries for another acronym-based entry: Digital Employee Experience. This is all about your internal users - your team. In a surprise to mostly no one, 95% of employees say IT issues decrease workplace productivity and morale - which is a bigger deal AND a bigger challenge to solve now that digital tools are more mission-critical in today's WFH/Hybrid/Remote work environments. 5. USER LED GROWTH: ULG is when existing users become your biggest advocates, driving leads straight into your funnel. It's not for every B2B SaaS company, but when done right, it can build a flywheel that slashes your CAC and ramp times. A classic example is Dropbox's referral program, where users earned extra storage by inviting others—a powerful way to turn customers into evangelists one GB at a time. 6. CASH MANAGEMENT: Part 1 of a 3-part Guide to Cash Management for Startups highlights bank account strategies at different Stages. The startup phase needs basic checking and savings accounts for operational expenses and emergencies, maintaining liquidity, managing cash flow, and keeping financial controls strict. It prioritizes simplicity and security in banking structures. 7. FORECASTING: We are all pretty terrible at it, and for those of you running calendar financial years, you don't have much left to be less terrible at it. Time to get started with a Finances Forecasting 101 article from Bessemer; this article even has a template for you. 8. FINANCIAL HYPOTHESIS: To add to the above, again from Bessemer, Financial models can be pretty overwhelming for many early-stage operators, so the Financial Hypothesis simplifies things. This model focuses on 3-5 key inputs crucial to reaching profitability or securing the next funding round (scroll down to the number 2 listing on this page). 9. 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, which includes some great analogies and tips on influencing the product roadmap. It also includes an article from First Round Review with a list of things to avoid when building highly technical products. 10. CASE STUDY: PRICING: The SaaS pricing landscape is shifting, with many companies adjusting strategies (73% increased prices). Freemium models remain key, while AI-driven features push usage-based pricing models higher. POD OF THE WEEK: The Bessemer Venture Partners session at SaaStr 2024, covering the impacts of AI on the State of the Cloud, is a great watch! They have carved $1B of their fund into AI companies. 1. SaaS METRIC OF THE WEEK: BURN MULTIPLES. In this new capital-efficient SaaS environment, operators are expected to find the balance between growth and efficiency. So it's time to brush up on those efficiency metrics in this 2 part post covering Burn Multiple and Sales Efficiency metrics (see post 2). A Burn Multiple measures how much a startup is burning in order to generate each incremental dollar of ARR. The higher the Burn Multiple, the more the startup is burning to achieve each unit of growth. Here is how to calculate this metric and here is an example.
2. SALES EFFICIENCY: Also known as the Magic Number, it is the sister metric to Burn Multiples above. Sales Efficiency measures how effectively your company generates $$ via front-end spend - basically new revenue generated over a specific period with the expenses incurred on Sales & Marketing during that same time frame. Check the SaaS CFO on calculating the Magic Number, and this article deconstructs it and highlights that it's a complex metric influenced by factors like market conditions and company spending, making it difficult to pinpoint specific areas for improvement. 3. PR: Getting good PR if you're an unknown startup is hard (and also can be seen as a low priority in the endless stable of things to get done) - but it's not as hard as you think without a publicist. Here is a great 101 article from Point Nine Capital (they call it PR for dummies) on how to get great press coverage. ChartMoguls also has this article late on PR for SaaS - with some sample scripts! 4. LEGAL: In startup land, there is a long tail of BS that founders need to navigate, and in a surprise to no one, much of that is legal. So check this huuuuuge handbook from Clerky on legal concepts all founders need to understand (incorporating, vesting, notes, etc.)l. Ready to get started drafting some documents? Here are some great resources for free legal docs so you can stick to the mission: Avodocs - 1 free per month. Cooley Go has a library of documents for the US and UK from Penn State Law School - a startup Kit bundle. 5. BUYERS vs USERS: The person writing you a check is not necessarily the same person getting value out of your business. So, take a read of this insightful article from HeavyBit on differentiating messaging based on this premise and the different profiles. 6. VC MATH: Lots of clicks on last week's Venture post on CBInsights Q3'24 State of Venture Report and one conversation about how VCs make money. Well, this week I have a pretty great response to that from Forbes with a breakdown of how (most) VC funds make their money and run their maths. 7. LIQUIDITY: A fast follow from above. Tomasz Tunguz put together an article discussing the collapse of M&A in Software, over the last two years. It's visually remarkable, and Jason Lemkin from SaaStr notes that there is almost no liquidity for startups and scale-ups at the moment. 8. SOFTWARE: This is a great, non-tactical read about where we are currently in the tech industry. The thousands of new SaaS products launched each year make it harder and harder to compete/standout/grow but AI is now revolutionizing software development, making it faster and cheaper (even I did stuff this weekend in hours that would have usually taken days, and by someone else), flooding the market even more, across industries. Consolidation in the software industry is to be expected, and Coding Jobs are already changing. 9. AI: What a time to be an AI consultant! Accenture booked $3B worth of "AI" bookings for the fiscal year, with $1B of that in Q4 alone. I'm in the wrong business. I am backing this up with this in-depth report on AI Adoption from Cledara. AI adoption in 2024 shows record-breaking growth (82% of companies use AI) but mixed ROI - only 47% of businesses report real value. Most plan to increase AI spend, but cautiously. Think we are still full hype... 10. CASE STUDY: As mentioned in #8 above, today's AI-powered tools are boosting developer efficiency by 10-40%, but this paper proposes that AI is set to revolutionize enterprise applications by breaking down siloes between different enterprise products and making automation and integration easier (be warned it's a long and detailed analysis). POD OF THE WEEK: Dave Kellogg walks us through the complexities of SaaS metrics, starting with some misleading metrics. 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. |
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