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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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Welcome to the last Newsletter of the year! Happy Holidays everyone. We're taking a break, too, and will be back with more for your inbox in mid-January
1. SaaS METRIC OF THE WEEK: Customer Renewal Rate measures the percentage of customers who renew their subscriptions at the end of each subscription period. High renewal rates inform companies about many things - product-market-fit, market, pricing fit, value, business model viability, etc. The authors of this article from Profitwell describe the formula and also make a point of differentiating between renewal and retention - one is actively renewing, and the other is not actively canceling. 2. PRICING PAGE: This is an excellent article from Chart Mogul outlining why pricing is the centerpiece of any startup/growth company's monetization strategy. They have reviewed over 600 pricing pages to gather best practices on how startups communicate their monetization strategy, starting with "Should you list your pricing?", "How many plans?" plus info on Free Trials, all with great case studies. 3. CAPITAL: According to analysis from Tomasz Tunguz, on average, in 2023, a startup is raising their Series A around ~15+ months after their seed round, a year ago, that would have been 3 months earlier and 3.5x the valuation. Keep this in mind for 2024, as check the 11 months it took for John Li to raise. 4. BENCHMARKS: KeyBanc Capital Markets (KBCM) are returning for their 14th annual SaaS survey for Private Startups (download the PDF here). This report includes responses from execs across companies at various stages. Note - this year's sample size remains very small (104), especially compared to Openview's 3500 respondents, which is why it doesn't get its own Newsletter. But with Openview's future up in the air, we may see a much larger sample size for KeyBanc next year. Unsurprisingly, KeyBanc is also observing a drop in ARR growth and NDR; they also have an excellent slide on Sales and Marketing conversion rates and note that public market software valuations are returning to more normalized levels - about 6x forward multiple. 5. METRICS: David Kellogg lists 15 SaaS metric misuses and a 5-layer maturity model to enhance metrics handling in SaaS companies. He emphasizes avoiding metrics abuse (don't club people with numbers!) and suggests focusing on linking metrics to strategy, fostering a metrics-driven culture, and defining strategic trajectories. 6. AI: Every year, Benedict Evans goes on an absolute blinder in PowerPoint, exploring macro and strategic trends in the tech industry. He's back with this year's version noting that across his 87-page slide deck, it's all about AI.....from Silicon to big tech, to all business, to regulation. 7. MARKETING: There is a funny techism along the lines of "30% of marketing is effective, we just don't know what 30%". If this resonates with you, look at this post from MKT1 on measuring what marketing activities are actually driving revenue. 8. FIGMA: In September of last year, I reported on the acquisition of Figma by Adobe. It's now 15 months later, and the deal has been abandoned. Looks to be regulatory in nature and mutual - read Adobe's and Figma's press releases here. Most Figma users are relieved, and Figma has faired well, with a $1 Billion Cash reverse termination payout - Wow! Biggest non-dilutive raise ever???? 9. WEB-DEV: Check out the new "The State of Web Development" report by Netlify; it offers web development insights, trends, and strategies for 2024 and beyond, focusing on composable architectures (a new term to add to your tech dictionaries) with 75% of those surveyed having used composable architectures in the last 12 months (surprise surprise - this is what Netlify does), the rise of generative AI (80% use it), and the growing popularity of the Astro framework over Next.js (even though it still remains the most popular). Bootstrap and Tailwind CSS were the most used CSS frameworks. 10. CASE STUDY: Pre Adobe debacle, FIGMA famously were wandering around in the wilderness in the early days until they found Product Market Fit. First Round Capital has broken its growth down (from stealth to enterprise) into 5 phases, and this article dives deep into Figma's Early Days and how patience & discipline fostered a killer product and PLG motion. POD OF THE WEEK: The problem/solution presentation from Dave Kellogg outlined in #5 above from SaaStr Annual on the 15 types of misuse and abuse of SaaS Metrics is well worth watching. (I watched it twice). 1. SaaS METRIC OF THE WEEK: Revenue Churn - and the differences between Net vs. Gross revenue Churn are neatly explained in this article. This is great if you're trying to understand your churn, reduce it, and make negative churn your thing (ka Net Dollar Retention).
2. COMPENSATION: This is a great free library of 20 sales compensation plans that can even let you scenario plan into 2024. Seriously, next-level content marketing that has a significant amount of value. 3. AI UI: This is one of the AI topics that interests me the most: How will generative AI change UIs and the way we interact and use the internet? This article discusses how LLMs can now turn sketches into interactive websites, hinting at AI-generated, real-time, user-specific interfaces in the near future. 4. AI: The State of AI report has been released by Retool and specifically looks at internal & external enterprise use cases and pain points when building AI apps/features. Asking the real questions - such as whether AI will replace Stackoverflow (a notable shift) and noting that Data security and output accuracy are major concerns in AI development. 5. SECURITY: Referencing the security concerns above, the State of Data Security Report notes that the rise of AI has also corresponded to Enterprises becoming much more serious and aware of data privacy & security risks. Hopefully, this will increase data security budgets and prioritize data governance because stuff is moving fast! 6. GROWTH 1: ChartMogul's 2023 SaaS Growth Report is out and reviews trends and benchmarks from 2,200+ companies in the $0-$30m ARR range. Here are some highlights: Best-in-class achieve over 100% annual growth, top SaaS startups reach $1M ARR within 9 months, and SaaS business experiences mild seasonality, with Q1 typically showing the best growth and Q4 the slowest. 7. GROWTH 2: This fantastic read by the team at Reforge argues that choosing between monetization and growth is a false dichotomy, suggesting businesses can successfully balance both for sustained, scalable success and also outline growth as a system with 3 elements: acquisition, monetization, and retention. 8. CHARTS: This is a fun one. "Friends Don't Let Friends Make Bad Graphs" is a GitHub article outlining some good and bad practices in data visualization - including examples and explanations. 9. SALES: Do technical products need a different type of sales process vs traditional enterprise SaaS products? Check this guide on Tech SDRs. These Reps, understanding developer needs, are key for selling DevTools efficiently. 10. CASE STUDY: I love the presentation style in this illustrated case study on how Zapier successfully implemented a usage-based pricing strategy and notification system, encouraging user upgrades and boosting revenue through increased engagement. POD OF THE WEEK: Need a SaaS Metrics refresher for the new year? CJ Gustafson interviews Alex Clayton on key software metrics and IPO evaluations in the software industry. DEEP DIVE TIME: Openview benchmarks privately held SaaS businesses and has released the seventh consecutive edition of their 2023 SaaS Benchmarks Report. This report has a broad sample size and combines over 3,500 respondents. It can be downloaded here as a PDF. It's an ever-evolving story from 2021 and 2022 into 2023 of what good looks like; back of the napkin summary here, but below are the top takeaways, which we always take to 11:
1. GROWTH: In 2023, achieving growth has become more challenging, but there are still resilient areas amidst the overall negative trends. Some exceptional companies, or "outliers," have successfully achieved faster growth compared to the previous year BUT are concentrated among AI and vertical SaaS businesses. 2. ARR per FTE: The now-popular efficiency metric! For many companies, Annual Recurring Revenue (ARR) per Full-Time Employee (FTE) has emerged as a primary performance indicator in 2023, signifying team productivity and doing more with less. Significant yearly increases in ARR per FTE have occurred from 2022 to 2023 across all bands of startups surveyed. 3. EMPLOYEE DISTRIBUTION: What's the breakdown of all those FTEs in the above metric? Engineering was the largest department across the board - typically about 30% and the mix remains pretty consistent across ARR categories. Diversity and representation still disappoint. 4. CAC PAYBACK: Another metric to watch and corollary to #2 - as it's an indicator of the business's health. Unfortunately, it's rising as the market becomes tougher. 5. RULE OF 40: Back in 2021, OpenView observed that "investors have forgotten all about the Rule of 40." Last year's response: the Rule of 40 "back from the dead." This year, it's increasingly important but a very tough bar to achieve continually quarter on quarter. 6. PLG MATURITY - PIR: Efficient product-led growth (as well as expansion and lean ops) is key for productivity. Despite initial lower profitability, PLG investments now aim for growth and efficiency by replacing manual work with product solutions, using "product-influenced revenue" as a key metric. PLG is a no-brainer for those AI Outliers mentioned above. 7. EXPANSION: Net Dollar Retention is getting more challenging but never harder than new customer acquisition efforts. Top quartile companies have been hit hard, seeing NRR drop from 119% to 107%. But at scale, more growth is from Expansion vs New. 8. LEANOPS: 2023 was the year of LeanOps and more companies pushing for profitability. In the past hyper-growth mode mentality, companies were focused on meeting demand and, more often than not, ignoring operational efficiency. In 2024, LeanOps strategies should include minimizing back office costs, optimizing pricing and packaging, automating manual work and process optimization, and ensuring smarter growth with less resource expenditure. Hey - isn't that language what most of us in the B2B world use to sell to our customers? Time to practice what we preach! 9. PRICING: FYI, last year, the median impact on NDR from changing pricing was a +14% increase among expansion-stage software companies. Message heard! This year's survey saw that 78% of respondents changed pricing and/or packaging (but you must put your time in). If international expansion is your thing, look at regional friction points: local payment methods (invoices, credit cards, PayPal, and region-specific methods), billing, and tax compliance. 10. CAPITAL: Money is still being raised at the early stage. 30% of Seed-stage SaaS companies recently received funding in the past six months, with another 20% funded within the last year. However, only 14% of Series B or later companies secured funding in the past year, stretching out that capital raised during more favorable times. 11. RECAP: Core SaaS Metrics are all summarized in this financial and Operating Metrics chart split by ARR groups and quartile. Print it out for your wall! Here is the chart showing the percentage change from last year to this year. POD OF THE WEEK: Too much to read and digest? Watch the Pod version of OpenView's SaaS Benchmarks Report with Kyle Poyar. I skipped the first 5 minutes for you as it's all Jibber Jabber. |
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