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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: The nag Metric, I'm bringing this one out of the archives, as I have been nagged a bit lately: A call to action within a site or customer journey is kinda like a parent trying to get their kid to clean up their mess. It gets a bit naggy after a while and gets mentally filtered out. This can impact your brand/NPS or irritate people into churn. The Nag Score - outlined in detail here, is an attempt to quantify this.
2. OKRs: Pioneered by Google a couple of decades back, OKRs have emerged as a part of the suite of modern product and company best practices (that include Lean, Agile, and Jobs-To-Be-Done frameworks). Tability has a (complete!) 2022 guide on the OKR Framework. 3. DESIGN: Bringing good design into different elements of a business is nothing new to most modern businesses. But there are specialized branches of design constantly emerging. Growth Design is one of my new favorites - merging typical HCD/Empathy Design but adding in the pragmatism of designing the jobs that need to be done by your customers. 4. COGS: Not every listing I write has to be exciting. Important is just as important. SaaS P&Ls are structured in specific ways, and defining what goes into the cost of goods sold (COGS) section is important. So take a good read of what the SaaSCFO recommends to include. An eye opener for me - where do you record your Support, Professional Services, and Customer Success expenses? 5. FUNDING: Startups go through a variety of fundraising lifecycles. This article is a guide to understanding startup funding/investing for all of you at the early stage of startup life. 6. VALUE PROPOSITION: We have all been asked endless times about our company's Value Proposition. In this article, Bart Krawczyk argues that solving a painful problem for customers is hardly enough: You also have to win the market category you play in. There are also some excellent value prop examples in this article. 7. PROBLEMS: The complimentary how-to guide for #6 above: 7 Principles For Writing Great Problem Statements. 8. CUSTOMER SUCCESS: ChurnZero has a great new report (surveying 1,037 customer success pros) - the 2022 Customer Success Leadership Study: 50% of CS teams own renewals and 41% own expansion. 9. VENTURE: Ouch: Pitchbook's 2022 Global Fund Performance Report is out, showing that the IRR (internal rate of return) for venture capital funds fell to -2.3% in Q2 2022. This is the first time since 2016 that the returns have dipped below zero. This a signal that the era of venture capital outperforming other private market asset classes is likely coming to an end. (Excel version of Data here). 10. CASE STUDY: Figma famously wandered around in the wilderness in the early days until they found Product Market Fit. First Round Capital has broken Figmas' growth down (from stealth to enterprise) into 5 phases. This article dives deeper into Figma's Early Days and how patience & discipline fostered a killer product and PLG motion. POD OF THE WEEK: From Stage2 Capital: How and when to layer Sales into PLG with Tony Granados (DataDog and Airtable). SaaS Nerd Alert: Yeeeeeeeee! It's my fav post of the year, and the most challenging part is choosing only 10 highlights, so, as usual, I'm taking it to 11. KeyBanc Capital Markets (KBCM) are back again for their (13th) annual SaaS survey for Private Markets (download the PDF here). This report includes responses from senior executives across SaaS companies at various stages, and we are seeing a rebound in growth as companies recover from the economic disruptions caused by COVID-19. Why should you care? This is data from Private Companies - of which about 20% are less than $5M in ARR, and about 40% are less than $10M - sound like you?
WORD OF CAUTION: The number of respondents has dropped significantly this year: 110 vs. 354 last year and 424 in 2019 (the 2020 count is confusing as they had to run it twice - a COVID thing). 1. PRICING: Only 41% of SaaS Companies priced by seat. (You may have seen my "occasional" posts on Consumption-Based pricing from time to time in this newsletter). An interesting note is that 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: This is a new metric measured starting from last year - The median enterprise value of companies surveyed last year was 8.4x ARR (at the time of the liquidity event), which had quite a bit of variation and a strong relationship between valuations and top-line growth. This year, shockingly to no one, valuations are down to 6.1x ARR (based on their most recent round). 3. SALES: The primary mode of Sales efforts remains Field Sales based. 59% for companies with more than $5 ARR and 73% for companies under $5m ARR. Inside Sales took the second largest chunk (22% and 14% respectively). But the complimentary slide to this is the distribution of method by deal size anything greater than $250k is all "Field Sales" - but assume a lot here is now Zoom-led. 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: Results vary. While the median sales and marketing spend has dropped this year to 31% of revenue (down from 36%), to ramp up ARR growth, you gotta blow a lot more dough relative to revenue: the percentage of revenue in isn't much more than percentage growth spend out. 5. GROWTH: The 2021 growth levels were back up to a healthier 31% as the COVID disruptions settled (2020 was 20%!). This year is an ARR growth of 31%, and forecasts are always a few points more optimistic - still at the same 36% seen in 2021 and 2019. BONUS - you can see how that 31% is split by industry categories here. 6. CAC: This one is always nuanced. The report always breaks CAC down into blended, new, and up-sell/expansion so you can see the efficacy of spend to return. The median blended CAC comes in exactly the same as last year - $1.20 for every $1 of revenue realized. FYI it was $1.10 in 2019 and ($1.32) in 2020. New Customer CAC is up significantly YoY and at $1.78: 2021 ($1.67), 2020 ( $1.60), and 2019 ($1.34). This signals two things: 1. SaaS is increasingly competitive, and 2. CAC Payback is getting way longer. Upsell/cross-sell (see below) is still cheap at $0.61 per $1 of ARR earned (and down from $0.63 last year). 7. CAC PAYBACK: CAC is also a measure of cash profitability per customer - and this negative trough is long, so take a seat! New customers, on average, take 2 years and 2 months to become profitable. This highlights a deepening dependency on access to capital to fund a SaaS company's growth through these SaaS Cash Flow troughs. 8. DISCOUNTS: If you are part of the great SaaS Ponzi Scheme like me, it may be no surprise that annual+ contracts are discounted. But how much? 8% is the median annually, and 10% on multi-year. 9. CROSS SELL/UPSELL: This one is interesting as it is way higher than the 36% last year: 46% 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 relying so heavily on acquisition as the business matures. 10. CHURN: Yeah - this one is a big problem, folks. The report for last year recognizes a YoY trend of a dollar churn decrease back to 12.6% (same as 2020). Which is also similar to 2019 levels (12.5%). This year: 14%. Luckily cross-sell upsell offsets this somewhat. Note that NDR is in the middle - 109%. 11. ARR per FTE: Capital Efficiency is a new metric we all want to track in these LeanOps times. This number is $143K per FTE. With public companies, it's double that, according to data from Maritech. 1. SaaS METRIC OF THE WEEK: Not just one - but 32: It's the motherlode from the Chargebee Blog: 32 SaaS KPIs Every Company Should Track, awesomely split across 5 different divisions: Marketing, Sales KPIs, Finance KPIs, Revenue, and Customer Success KPIs. 2. MARKETING: SaaS Marketing is a practice covering many different disciplines and specialties. Which one should a startup hire first? 3. FAILURE: This is a skill. Prove me wrong. Failure also requires a culture of safety and permission to be wrong. Tall Poppy doesn't help. As many organizations look to best 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. 4. CLOUD: Battery Ventures' "State of the OpenCloud 2022" report is out this month. Revenue multiples are down across the board - The median forward multiple for SaaS companies has fallen from about 16x to roughly 6x today and was at its max (44.1x) a mere 11 months ago, and the market is shifting from "growth at all cost" to "measured growth" - growth + profit. It now needs to be both. 5. SALES TEAMS: Take a good read of this article from David Sacks on the simple math you can use to set up a sales team. With Individual plans, team plans, and expansions/renewals are all considered for a high-growth sales team structure. 6. MOATS: As mentioned in past posts, Moats are one of the best ways to provide a competitive advantage for your business, and moats come in all kinds of different flavors (such as speed, Brand, or growth). But here is a great one that conceptually covers b2b and b2c: EMOTION!. Regarding B2B, this post lists some popular and effective ways companies create moats for their products. 7. LAYOFFS: Twitter, Lyft, Stripe, and Meta all joined the layoff lists this week - see htpps://layoff.fyi for a comprehensive list so far. "Lean Big Tech' or "Lean Ops" is probably a phrase we are going to hear a lot of in the upcoming months (and I totally coined both). Stretching Capital is the main reason why, according to Jason Lemkin. 8. HIRING: The ying to the yang above. The new opportunity for early-stage startups is to scoop up laid-off Tech workers - something unheard of a couple of years ago. It's important to note that, as of now, unemployment in the tech industry is still crazy low: 2.1%. 9. INFLATION: Who's increasing prices this year due to inflation and/or FX rates? Tomasz Tunguz notes in this week's newsletter that 8% annual inflation for a startup means losing a month of runway yearly! That is some perspective that hurts. 10. CASE STUDY: There is nothing better than a good case study covering products I love to use. Grammarly is still privately held (and last valued at $13 Billion) with 30 million daily average users (of which I am for-sure one) - they have been profitable since day 1 as they are one of the ultimate PLG businesses that merge B2C and B2B with a TAM of.........pretty much everyone with a computer. An excellent case study on SEO, engineering, great content, and an embedded and rewarding product experience. POD OF THE WEEK: Speaking of SEO (in 10 above), here is how to grow your B2B SaaS with SEO with Jeremiah Smith, who operates a SaaS-focused SEO and Content Marketing agency. 1. SaaS METRIC OF THE WEEK: Usage-based pricing and MRR/ARR models are often mentally hard 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.
2. SCALE: This is a must-download. Mark Roberge, the founder of Stage 2 Capital and member of the founding team at HubSpot, has launched this great playbook for scaling. In this detailed book, Mark has defined different stages of scale, established quantifiable measures for each, structured the sequence and signals of when to move from one stage to the next, and explored the optimal go-to-market design of each one. 3. CYBER: Gartner's new report forecasts that enterprises will spend $188.3B on cybersecurity products in 2023 - most of that will be my annual Cyber policy :-) - and growing to $262B by 2026. 4. CHURN: In this post, Lenny Rachitsky asks, "What is a good monthly churn for a SaaS business?". Zero is the obviously 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, and less than 1.5% is GREAT. For B2B Enterprise: 1% - 2% is GOOD, less than 0.5% is GREAT. 5. AWS MARKETPLACE: I just listed our B2B SaaS on the AWS Marketplace this week - it's hard. So to celebrate, here is a teardown from Protocol into the AWS Marketplace, where we startups can sell our cloud services to enterprise customers (and AWS transacted over $1 billion last year). 6. FINTECH: From Coatue is a report on all things fintech for 2022 - great for any of you in the FinTech space looking for solid data sources. It also highlights two impressive things: 1) FinTech is the most dominant cloud category across the tech ecosystem (slide 6) and likely because Financial Services has the largest gross profit pool across every significant sector (Slide 8). 7. BIG TECH AND CLOUD: Lots of high drama and intrigue in the Big Tech scene these last couple of weeks, and MASSIVE amounts of value wiped out in Stock Market sell-offs, Big Crypto is technically less volatile. These businesses are really being tested - but FYI - the Big Cloud ones are still getting bigger - public cloud has a $1.5T run rate. 8. SALES EFFICIENCY: Tomasz Tunguz is coming through with a banger of a post this week and taking a deep dive into Sales Efficiency both through and post the COVID era. Since 2016, on average, in Public SaaS, sales efficiency has dropped from 52% to 47% (a drop of about 10%), and he notes that it ain't COVID - it's competition that's creating the slide. 9. MONETIZATION: What are the best ways to monetize based on market segment? For the SMB market (100-200 employees), self-serve is critical. Product-led sales are optimal in the mid-market (200-1000 employees). At the enterprise level (1000+ employees), sales-led reigns supreme. But a bigger question to ask (and Jason Lemkin asks it): How Cheap a Product Can You Have And Still Have Salespeople? 10. CASE STUDY: A read for your Coffee/Pomodoro break - it's about hyperlinks. We are breaking out the way-back time machine for this one (all the way back to 1993). This newsletter is jam-packed with hyperlinks. So here is a question that is not necessarily helpful for your business but one I have yet to consider: Why are hyperlinks blue? POD OF THE WEEK: From Sachin Monga, a great discussion on the evolution and origins of the blog platform Substack. |
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