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​TOP 10 IN TECH

​a weekly newsletter
Curated SaaS and tech insight from around the web repackaged for people to put to good us

Top 10 in Tech - What to know for Week ending November 26, 2021

11/26/2021

 
  1. SaaS METRIC OF THE WEEK: MRR: Subscription revenue is powerful. It accumulates and compounds over time, and MRR, or Monthly Recurring Revenue, is a predictable (..get it?) SaaS Metric Classic - so this is a deep dive article into everything you ever wanted to know (and much, much more) about these standard metrics, covering different MRR types, differences between MRR and ARR, etc.
  2. PRICING 1: As mentioned in last week's report - only 41% of SaaS Companies price their product by seat in 2021. TechCrunch also notices that more and more SaaS companies are shifting to usage-based, not seat-based, pricing. They reference OpenView's annual Financial and Operating Benchmarks survey noting that startups that adopt product-led growth and UBP outperform their peers. With the more recent additional complexity introduced by B2D (D for Developers) models and Data/AI/Intelligence-based products, traditional pricing no longer works for many of us - and how do you even price intelligence as a product per seat?. Tomasz Tunguz breaks down pricing in Per-seat vs. Usage-based scenarios. Bessemer Ventures also reports that UBP sees best-in-class net-dollar retention results.
  3. PRICING 2: Speaking of that OpenView report - you can download that here. It's a survey of almost 600 SaaS companies, and it's fantastic, measuring a 2x adoption of usage-based pricing in companies surveyed since they started the study back in 2018. There is also a great slide (#16) with a decision tree to decide if usage-based pricing is right for your business.
  4. EMPLOYEES: Here is a great question: How many employees should you have based on your ARR? David Sacks has a great slide from his SaaStr presentation on optimal SaaS Org Charts - 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 how the org chart looks.
  5. VALUATIONS: We are currently somehow here. The Information wrote a great article almost a year ago on "The 100x Club," a group of SaaS startups raising money at 100x revenue multiples! This is not just a US valuation thing - India's Postman landed in the 100x club earlier this year, and according to Tomasz Tunguz, the 100x club might be the fundraising meme of 2021.
  6. EQUITY: I highly recommend any founder read this three-part deep dive into the equity terms that matter to them - as not all startup equity is equal. 'Dilution' is one of the most feared words- so let's benchmark it - what is the average ownership percentage by SaaS Founders at the time of IPO? Sammy Abdullah takes a review, and the median level of founders ownership is 14% while the average is 23%, with VCs owning about 54% on the median. There is a significant difference in Bootstrapped vs. not in this dataset. As a bonus, take a read of this article from Heavybit that discusses Cap Table management in relation to growth and how to manage that Option Pool.
  7. AHA: This is an excellent 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 focuses on the concept of long-term retention.
  8. TECHNOGRAPHIC: Add this doozy of a Portmanteau to your dictionaries and spell checker. You should read that whole article also, as I don't know about you, but the number of tech vendors we use to run our tech business stresses me out, with services flopping in and out all the time! This leads nicely into the article: How Many Technologies Can a Company Adopt at Once? Answer - there is always one more (JK, but not really).
  9. T3D3: No - this is not a reference to a droid in Star Wars. It's an update to the much referenced T2D3 metric that Neeraj Agarwal of Battery Ventures wrote about back in 2015. T2D3 is an acronym for "triple, triple, double, double, double." It refers not to In-N-Outs secret burger menu but to a company's annualized revenue growth performance path towards becoming a unicorn. T3D3 is the updated version of that acronym: "triple, triple, triple, double, double, double." Jason Lemkin argues that this change is the "cost" in the explosion of valuations and market caps.
  10. CASE STUDY: Expensify is an overnight success over a decade in the making. It actually took Expensify 13 years to hit 140m ARR but is now growing at 60% year-on-year with only 140 employees (compare that to #4 above) - it's a lean + PLG story.​
POD OF THE WEEK: If you liked the slides from #4 above - take a view of the actual presentation from David Sacks.

Top 10 in Tech - What to know for Week ending November 19, 2021. SaaS Survey Special

11/19/2021

 
Nerd Alert: Yeeeeeeeee! It's my fav post of the year, and the most challenging part is choosing only 10 highlights, so I'm taking it to 11. My buddy David Skok and KeyBanc Technology Group are back again for their (12th) annual SaaS survey for Private Markets (download the PDF here). This report includes responses from senior executives at more than 350 companies, and we are seeing a rebound in growth as companies recover from the economic disruptions caused by COVID-19. Prior versions can be read here and here.​

  1. PRICING: Only 41% of SaaS Companies priced by seat in 2021 (You may have seen my "occasional" posts on Consumption-Based pricing from time to time in this newsletter). Interestingly, this survey now includes varying segments beyond B2B and B2C - such as B2d (D for Developers) and API companies. Which reflects the evolving tech/SaaS landscape.
  2. VALUATIONS: New metric measured for this year - The median enterprise value of companies surveyed sits at 8.4x ARR (at the time of the liquidity event). But there is quite a bit of variation and a strong relationship between valuations and top-line growth.
  3. SALES: The primary mode of Sales and Marketing efforts remains Field Sales based in 2021 at 55% for companies with more than $5 ARR, with Inside Sales taking the second-largest chunk (29%). But the complimentary slide to this is the distribution of method by deal size. Anything greater than $250k is still Field Sales - but I'm getting no data yet on how many of those "field sales" are now remote/Zoom-led. Here is the expected sales cycle length based on ACV.
  4. MARKETING SPEND: Figuring out how to optimize marketing spend and growth rate is a crucial question, and this study doesn't show the benchmarks marketers want to hear: While the median sales and marketing spend maybe 36% of revenue, to really ramp ARR growth, you gotta blow a lot more, - the percentage of revenue in isn't much more than percentage growth spend out. 
  5. GROWTH: Last year, 39% growth was expected in January. By the end of June, it was reduced to 20%, and in 2019 was 36%. Those 2019 growth levels are back up to a healthier 31% as the COVID disruptions start to settle, and forecasts are back to the same 36% seen in 2019.
  6. CAC: This one needs nuance, so the report has broken it into blended, new, and up-sell/expansion. The median blended CAC comes at $1.20 for every $1 of revenue realized, which sits slap bang in between 2019 ($1.10) and 2020 ($1.32). New Customer CAC is up against 2019 ($1.34) and 2020 ( $1.60) - SaaS is increasingly competitive. Upsell/cross-sell still sitting in cheap at $0.63 per $1 of ARR earned.
  7. CAC PAYBACK: CAC is also a measure of cash profitability per customer - and this negative trough is long! According to this survey, new customers, on average, take 2 years and 2 months to become profitable. This really highlights what will be a deepening dependency on Capital to fuel SaaS companies' growth.
  8. ANNUAL DISCOUNT: If like me, you are part of the great SaaS Ponzi Scheme, it may come as no surprise to you that annual contracts are discounted. But how much? 10% is median - and the range is tighter than I thought - 6%-14%.
  9. CROSS SELL/UPSELL: This is pretty much the same as last year: 36% of new ARR bookings are attributable to cross-sell/up-sell activities. Larger companies use this strategy more heavily than their smaller counterparts (2x more). This is likely due to not being so reliant on new acquisition focused as the business matures.
  10. CHURN: It's still a problem, folks. The report for this year recognizes a dollar churn decrease from 13.9% in 2020 (20% of which was attributed to Covid) back to 12.6%. This is back to similar levels from 2019 (12.5%).
  11. BURN: The average SaaS company burns $52m to get to $100m in ARR, and it takes under 9 years (8.7 to be exact).

Top 10 in Tech - What to know for Week ending November 12, 2021

11/12/2021

 
  1. SaaS METRIC OF THE WEEK: CAC payback (and accounting for the upsell) Often time many of the base metrics (CAC, CAC/LTV, etc) are in service to VCs and operationally don't tell us enough to make great decisions. This article takes an operator view on CAC Payback that includes (and celebrates) the value of net revenue retention and Tomasz Tunguz chimes in this week on the need for two types of payback period calculations - because Cash is the bigger driver.
  2. BLOCKCHAIN 2.0: aka Web3. The crypto hype of 2018 is back and legit to the point where CB Insights has produced a State Of Blockchain Q3’21 Report. Blockchain startups have raised $15B of cold, hard FIAT so far in 2021 which is up 384% from last year and there were 12 blockchain unicorns added last quarter. SIDE NOTE: NFTs have JUMPED to friggin' $11B this Quarter.
  3. VENTURE: Hands up if you thought that the Pandemic could be a great equalizer of Venture Capital distribution? I certainly did. Well here are some truths for us all to mull on: Startups in California, NY, and Massachusetts commanded over 3/4 of all venture capital dollars dished out in the U.S so far this year, venture funding going to female-only founders dropped to 2.2% in 2021 (lowest it’s been in five years) and in 2020, Black founders received only 0.6% of venture funding!
  4. FIRST PRINCIPLE THINKING: Want to be more like Elon (but without the Twitter dramas)? Take a read here on the concept of First Principles Thinking. Not gonna lie, I've re-read it again this week and it still makes my brain hurt. Want more? Fine. Here is a full guide/website. Now that you are an expert on this principle, here is how First Principle Thinking can be applied IRL - in this example towards a Product Lead Growth business.
  5. CUSTOMER SERVICE: In this current age of the customer, enhanced by COVID, SaaSx makes the argument that in the SaaS world, Customer Success is actually the product. Want to start building out that product? Check the HubSpot guide on getting started with your Customer team.
  6. MARKETING: Add this one to your SaaS dictionary: Buyer Intent Data. I have posted all kinds of articles in this newsletter on Marketing strategies and tactics - but there is never a one-size-fits-all channel for a company. So how does a business find out what are the best marketing channels for them? This article suggests that everything needed to answer that question is already within the data a business generates every day. (you're gonna need Personas - so don't skip #5)
  7. FRAMEWORKS: Beyond metrics, a successful framework can distill complex processes or models to make execution more of a simple recipe. Kinda why OKR's exist. Sarah Tavel has compiled a great list of compelling Frameworks covering: The 10x model, The hierarchy of engagement, Hype cycles, and more!
  8. MRR LEVERS: OK -so what are the best ways that SaaS companies can grow their MRR? Check this article that looks at two (of the five) elements of MRR growth that often fly under the radar of acquisition (expansion and reactivation).
  9. PLG FLYWHEELS: As a refresher, read this to understand the 4 basic principles behind PLG and then check this article out that goes into lengthy detail of how to design for PLG across the customer journey (and creating a flywheel). This is different from a sales funnel, as the flywheel model is designed to build momentum from one phase to the next, which also gives you a good way to segment users
  10. CASE STUDY: OKTA - who earlier this year acquired Auth0 for a mere $6.5B - are an under-the-hood Tech company ("one of those" SOMA 2nd Street Tech Companies is the SF reference) but surpassing $1B in ARR. So check this SaaStr Case Study on the growth of the OKTA business on how they got there.

​POD OF THE WEEK: Scott Farquhar (co-founder and co-CEO of Atlassian) on how he built Atlassian (and used Smart pricing)

Top 10 in Tech - What to know for Week ending November 5, 2021

11/5/2021

 
  1. SaaS METRIC OF THE WEEK: USER ADOPTION - measuring which new users could turn into paying customers (and which are going to drift away). Everything you need to know is in this article - it’s a comprehensive and very deep dive (because these metrics differ between businesses and between cohorts of users).
  2. SDR SALES: Chorus.ai has built a great report of what high-performing outbound sales teams are doing to close deals (this is an analysis of over five million sales calls!). You can add in the kind of business you are (SMB, Mid, Enterprise) on this page to see how you measure up. Key nuggets: An SDR dials, on average, 106 people to schedule just one meeting and the typical win rate of a sales qualified lead (SQL) is 19%.
  3. BUSINESS SPEED: First Round Capital always has a good perspective on speed at the business level. This is because top tech companies and are market differentiators in part because they operate at a cadence that is faster than most. It’s all about execution and heartbeat, which requires a fierce focus and prioritization. This kind of adaptability is something we all need after last year.
  4. VENTURE CAPITAL: Significant news came in late last week from Sequoia Capital (specifically its U.S. and Europe business). In this blog past Sequoia Cap have announced a massive change to its business model by ending the traditional 10-year fund cycle and setting up a single permanent fund called the "Sequoia Fund" that will contain other funds in it and also will become a registered investment advisor (RIA) which will give them access to different asset classes such as crypto and seed investments. This will also give LPs the flexibility to pull their money out anytime (vs. traditionally waiting for distributions) and proceeds from the various sub-funds will return directly into the overarching Sequoia Fund.
  5. MARKETING SPEED: Guess what? Your marketing team is slow!. Take a read of this article on frameworks to make your marketers speed up. Tech companies are market differentiators in part because they operate at a cadence that is faster than most. Speed is a competitive advantage that your marketing teams need to leverage!
  6. E-COMMERCE: Shopping from home and a massive move to online shopping behavior has been one of the most significant shifts due to the Pandemic: About 40% of Millennial consumers say they didn’t miss shopping in person during the pandemic, Shopify announced earnings so far this quarter of $1.12 billion (up 46% from a year ago) and the 3 big retailers (Walmart, Target and Amazon) are really seeing the lions share of this increased spend. So given we are close to the end of the year (how did that happen?), here is a list of 13 eCommerce trends to look out for in 2022.
  7. CRYPTO-SECURITY: My crypto posts a couple of weeks back on the crypto-future of the internet were more popular than I thought. So here is an expansion into crypto-security for all of your newly acquired NFTs and DAOs with new strategies for storing these assets safely while also allowing holders control and access.
  8. TEAM MANAGEMENT: Ouch - I seriously need to make an infographic of this and put it on my wall - I've got some work to do as I'm guilty of more of the DO NOT's in this article than I want - it's discussing how to hold employees accountable without micromanaging them. 
  9. PLANNING: For many of you your financial end-of-year is fast approaching, so question: How Dynamic Is Your Revenue Plan this year? 2020/2021 may have forced multiple re-forecasts for your business and who knows what BS 2022 is going to throw down (although hosting a Taco Tuesday on 2/22/22 will be my highlight). Anyway - who knows what could stall or even reverse your growth aspirations, so it's time to pull operational techniques from other departments (ie your Dev squads Agile ways) to create a more dynamic revenue plan - take a good read of this article from SBI for hot tips on avoiding poor Sales-based strategic planning. It even comes with an (OK-ish) downloadable planning tool (which I took the liberty to snag and sacrifice my email address for you) and First Round Capital feels the same way - Annual Planning is Killing Your Growth - but take a different tack - building a three-year plan! 
  10. CASE STUDY: You may have already forgotten but last month Facebook (and Instagram and WhatsApp) all went offline (so Meta). It was 7 hours of high drama at the time FYI. The team at Cloudflare has run a full postmortem on this event to help us all understand how facebook disappeared from the internet. TL;DR it was DNS, it's nearly always DNS.
​
POD OF THE WEEK: It's the podcast version of #7 above - a16z's Crypto Security Podcast.

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