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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: CAC PAYBACK: The 'payback' period is the nuance of why we measure CAC. How long until we break even? Benchmark-wise, the negative trough is way longer than you think, so take a seat! New B2B customers, on average, take 2 years and 2 months to become profitable. This really highlights a deepening dependency on access to capital to fund a SaaS company's growth through these SaaS Cash Flow troughs. BONUS: Here are last week's CAC Payback benchmarks.
2. FUNDRAISING METRICS: Take a read and a bookmark of this guide to SaaS metrics for fundraising that breaks down the essentials. The big idea here is to build a "data deck" that answers investor questions upfront, focusing on what they perceive as important metrics like MRR, CAC:LTV, and churn patterns to demonstrate profitability and scalability. BONUS: Here is a guide on what should be included in investor reports. 3. CUSTOMER OPERATING SYSTEM: What exactly is the difference between Customer Success and Customer Support? Get started here to understand the nuances, they are both part of the same customer journey spectrum, and Totango posits, in this recent SaaStr Annual presentation, that we need a fresher look at Success and Support that they coin the "Customer Operating System" (Like the presso? Here are the Google Slides deck). 4. PRICING: The title of this article says it all - 5 SaaS pricing mistakes you're probably making. Stop lowballing! Pick the right metric, make purchasing easy, optimize upsells, and keep pricing dynamic. 5. EQUITY: This is a very bookmarkable series from Femstreet that covers the startup founder's guide to equity. Don't worry about Part 1 - it's a very basic primer. The good stuff starts in Part 2 and covers the different types of equity at a startup (founder, investor, vesting, liquidation, pro-rata, etc etc.), and Part 3 - covering cap tables and things you can do if they are messy. 6. VENTURE-STRAPPED: I googled this term already, and it's unique! It's my term for your tech dictionaries for a hybrid startup that is a mash-up of the old debate of bootstrapped vs. VC financing and applies to startups that raise only once. This anecdotally seems a more common practice in these new market conditions (including Klaviyo and Zapier). Jason Lemkin notes this new one-and-done third way. 7. AI INVESTMENTS: Menlo Ventures' new report highlights a significant shift in enterprise AI adoption. AI spending is now at approx $13.8 billion, which is up 6x from 2023. 60% of these investments are from innovation budgets, while 40% are integrated into permanent allocations. Enterprises are exploring an average of TEN AI use cases, with 24% prioritized for near-term implementation. 8. VERTICAL SAAS: A lot of Big Tech is under threat from narrowly focused SaaS companies taking market share in niche areas and building massive businesses. Vertical SaaS isn't new (the difference between vertical and horizontal SaaS here), but look at how these vertical SaaS companies are taking market share from those cloud giants and how AI and Vertical SaaS are the outliers to achieving solid growth in this current market. 9. FOUNDER VESTING: This is a great one for all you founders. Four-year vesting schedules are standard for many founders (and they are still vesting during early funding stages). But with the time between stages now being longer, after this traditional 4-year phase, Investors are now pushing for re-vesting to ensure long-term commitment and minimize "dead equity." 10. CASE STUDY: Everyone loves a good old Pivot story - expanding on #6 above, here are 5: The Hidden Backstory of 5 Startup Pivots That Grew to $43B including Lyft and Discord and also a "definitive" Pivot list from Lenny of Lennys Newsletter (see below for more) POD OF THE WEEK: Expanding on #8 above, why vertical SaaS is booming, and how to get 110% NRR from SMBs, with Jason Lemkin and the CEO of Mangomint. 1. SaaS METRIC OF THE WEEK: DAU/MAU. The DAU/MAU ratio is a popular metric for companies that need to measure user engagement. Rule of thumb: Average is 13%, apps with over 20% = good. If you have 50%+ - you're world-class.
2. 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 90-page slide deck, it's really all about AI again (which is also what he discussed in last year's presentation: "AI, and everything else").....but this year is really about the post-hype investment surge where proven market value hasn'thasn't yet to be firmly established (by that I mean investment vs. Value Creation). He still recognizes that this is the new platform shift - but scale is hard and REALLY expensive, which limits competitiveness. Slide 59 is the best TL;DR: The future can take a long time. 3. TESTING (MARKETING) 1/2: According to this article at Reforge, marketers often don't see expected big returns from testing because they choose to avoid major risks. Making bigger bets with strong business cases can lead to transformational success - it has some great IRL example bets from Groupon and Google, and there is also a "Big Bet Calculator" embedded in the article for you to use. 4. TESTING (MARKETING) 2/2: Experimentation and benchmarking are crucial for goal/KPI setting when starting with Paid advertising experiments and calculating Return on Ad Spend (ROAS) to scale those advertising efforts efficiently. Take a read here on how to maximize ROI on your early paid advertising efforts. 5. PLG vs PLS: Product-led sales (PLS) and product-led growth (PLG) are definitely different: PLG uses product experience for growth, while PLS prioritizes and nurtures leads for sales, leveraging product insights for personalized campaigns and user nudges - learn more here. 6. AI ADOPTION: Slack has released a 2024 Workforce Index for this Fall, which reveals a cooling in AI enthusiasm among desk workers. However, 76% of those surveyed expressed a desire to become AI experts but get it together, y'all - 61% have spent less than five hours learning AI tools. Top concerns include the perception of AI as akin to cheating (and fears of being seen as less competent). Execs, however, remain committed to AI innovation, ranking it above external factors like politics or the economy. It's a bit of a disconnect - which means training and clear guidelines/governance can bridge the gap between those leadership ambitions and employee perceptions. 7. VENTURE: Carta's Q3 2024 report looks to be indicating some stabilization in VC activity. Late-stage deal activity and M&A are trending upward, but early-stage stilll looks to be a struggle, with 20% of rounds being down rounds. 8. CONTRACTS: This is the report none of us knew we needed - but it's the unsexy stuff that matters as there are some insightful gems: A guide on SaaS Contracts, complete with benchmarks such as customer signature roles (3/4 are Executives), AI and ML clauses (big increases in recent years), and the big one, time to sign - 3-5 days-ish (SMB to Enterprise). Have a read - I bet you will have some serious takeaways. 9. TECH TRENDS: Check out the 2025 Tech Trends report from CB Insights. TL;DR highlights include the future of LLMs, the rise of gen AI in education, decentralized identity frameworks (web 3.0 v2?), and quantum-proof cryptography. 10. CASE STUDY: Microsoft leans heavily on the "growth mindset" as a cultural cornerstone of the org. This article takes a deep dive into the concept and how MSFT has adopted it into their decision-making and employee performance assessments. The unintended consequences look to be a culture that discourages dissent and critical thinking. POD OF THE WEEK: This is a great and timely Podcast covering Founder Led Sales with TONS of good and tactical advice for those of us at the early stage (or who have a heavily weighted Founder_led Sales strategy). 1. SaaS METRIC OF THE WEEK: Consumption-based LTV. If you have a consumption/usage-based model (with other revenue sources sprinkled in), then, like me, you probably have revenue that is not quite consistent month on month. Variable revenue is now a big thing in SaaS, which is evolving due to AI (see last week's newsletter for more on that - #3). Check out How to calculate LTV with variable revenue customers from the SaaS CFO (comes with a template!). An analysis of usage-based pricing from Bessemer Ventures is here, to help think about your pricing models.
2. VENTURE: DPI (Distributed to Paid-In Capital) is a measure of the total capital that a fund has returned to its investors (to date), and when looking at their portfolio companies, VCs balance art and science in their exit strategies by selectively selling to secure early DPI gains without losing out on long-term growth potential, while being mindful of the impact on fund performance and LP expectations. 3. GOVERNANCE: Last week's Board post was popular, so here is Mark Suster's series on his Medium Blog covering StartUp Boards. A follow-up article shows a board structure based on stage. He also provides a blog post AND a 43-slide deck. 4. OPEN CLOUD: Battery Ventures' 2024 OpenCloud report reveals enterprises are moving AI projects from experimentation to production, but the gaps between expectations and reality are very much still there (fewer than 30% of AI projects are in prod). But smelling opportunity, Cloud providers are ramping up AI infrastructure to capture a share of the estimated $2T incremental revenue opportunity by 2030; AI's having a pretty major impact on everything cloud. As I've mentioned before - the AI wars are here. One interesting side note slide (slide 15) is that valuations are up. 5. DEVS AI: Accel's 2024 Euroscape report highlights the growing adoption of AI use in software development. 84% of those surveyed (Accel portfolio companies) leverage AI tools like coding assistants to enhance developer productivity. Developers use AI to debug, generate boilerplate code, learn new skills, and drive faster software delivery cycles. GenAI is also reshaping enterprise applications (but only 30% of the time - see above), enabling hyper-personalized customer experiences, and transforming core business functions with AI agents. 6. PURCHASING: Lots of reports this week - Vendr's Q2 2024 SaaS Trends Report reveals a pretty big shift in the software procurement landscape. The big one is that over half (52%) of sellers on their SaaS Leaderboard are new. Despite a 37% decrease in purchase volume for the top 25 categories, the emergence of six new categories suggests that spending is becoming more distributed. Identity and Access Management, Project Management, and Cybersecurity (with Crowdstrike still there for now) continue their leads. And BI is seeing a decrease. 7. AI JOBS: Dragging this up from last year as I had a deeper discussion over the weekend with people convinced that AI will cause employment. Marc Andreessen makes the case in March 2023 that it won't. 8. VENTURE: Scott Hartley highlights the concept of VC "time dislocations," where the current market challenges we are experiencing (like fewer IPOs, lower valuations, and long time between rounds) create opportunities. Savvy investors can secure discounted stakes now, setting the stage for outsized returns when (fingers crossed) markets recover. This may partly explain the slide in #4 above (but probably not as much as Tech hype) 9. MOATS: 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! When it comes to B2B, this post lists some popular and effective ways companies create moats for their products (see more below). 10. CASE STUDY: Complimenting #9 and Pod of the Week (below) CB Insights reports on Moats IRL with 29 examples of enduring moats (from Amazon and Tesla to Starbucks and Coinbase). Key strategies include leveraging network effects, scaling through cost advantages, and capitalizing on brand loyalty. POD OF THE WEEK: Expanding on numbers 9 and 10 above, here is Jason Lemkin's pod/vid on Top 10 Moats in SaaS. 1. SaaS METRIC OF THE WEEK: Hitting another motherlode this week with this highly bookmarkable Guide to SaaS Metrics from equals.com, which covers all the greatest hits and more (ARPA, LTV:CAC, Burn Multiples, etc.)
2. FINANCIAL FORECAST: Your 2025 new financial year is just around the corner! Now is always the second-best time to start (the first was two months ago). This is a great article with a complimentary Excel download from The SaaS CFO—it's a SaaS Financial Plan for Startups (and also works for most SMBs). It also comes with a handy complimentary video tutorial for the worksheet. 3. PRICING: The traditional SaaS model is evolving due to AI. With AI integration, companies are shifting from traditional ARR access to performance-based pricing. For instance, Intercom now charges $0.99 per AI-resolved support ticket, and Salesforce's Agentforce bills $2 per conversation (but check this cool list). This approach aligns well with discussions I had last week around costs and delivered value. It also offers customers a lower TCO for AI features and products. VBP (Value-Based Pricing) will be showing up on the block a bunch in 2025. 4. SEED: Last week's post on Seed funding was surprisingly popular, so for all of you at the earlier stages, check out this neat guide to Seed funding from Carta. It covers essentials like raising amounts ($500K to $5M), investor types (angels, accelerators, VCs), and key funding structures (SAFEs, convertible notes). 5. DEVS and AI. Early this year, after reading the Stackoverflow Dev Survey for 2023, I noted that Stackoverflow's main contribution to developers (Code search+copy+paste) looks to be under threat as the majority of Devs are using GenAI in their work, so check out this chart that I found on Reddit last week; Stackoverflow traffic looks to have fallen off a cliff. ChatGPT doesn't Gatekeep or berate, and people prefer that. Anyhow - the new 2024 version of that report has dropped. 62% of developers now incorporate AI tools into their workflows (with 81% citing productivity gains as the primary benefit). Trust in AI outputs remains divided, which is fair. A much better insight is that 70% of professional developers do not view AI as a threat to their jobs, indicating a general optimism about AI and dev. 6. MARKETING: Here are "5 B2B Marketing Trends for 2024-25". This article covers some essentials for AI-leveraged modern marketing: AI-powered personalization, a strong focus on Account-Based Marketing, and a shift toward quality over quantity in content creation. 7. VENTURE: How do investors value startups and navigate ownership? Check this article on VC Math with some TL;DR points that include understanding valuations (pre- and post-money), the impacts of dilution, and popular valuation methods (like the Dilution and Venture Capital methods). Founders also need to get familiar with convertible instruments like SAFEs and understand how market conditions can seriously impact valuations and investor appetite. 8. AI: Check out this Allied Advisers PDF report covering advancements and challenges in AI. The big one is that by 2030, AI's contribution to the global economy is projected to reach $19.9 trillion. Such a big forecast TAM (3.5% of global GDP) and AI adoption in corporate is now 65%, up from 33% in 2023. The bigger challenges (briefly mentioned in last week's newsletter) are the high infrastructure cost, training AI models, and managing data quality, which present significant challenges as organizations navigate these evolving technologies. 9. BOARD: Want to be more effective at startup board meetings? Here is a list of some top tricks. Try starting each meeting by reiterating the company's mission and vision for context in discussions. The CEO's "State of the Union" should offer an open assessment of the company's current status (key successes and areas for improvement). Prioritizing product discussions over financial metrics to focus on long-term strategy is a great one, as is Go-to-market updates should concentrate on strategic objectives rather than tactical details. 10. CASE STUDY: CJ Gustafson has a good read covering three stories of big tech startup names (Asana, Fastly, and Confluent) that are still trading below their IPO prices for reasons. POD OF THE WEEK: What really matters in SaaS in 2025 with Jason Lemkin and Dave Kellogg, where they delve into five key topics in SaaS and cloud for 2025, discussing the future of AI in B2B, strategic pricing changes, the impact of moving customer success to sales, and the state of private equity deals. 1. SaaS METRIC OF THE WEEK: EXPANSION: Net Dollar Retention is getting harder to come by 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.
2. GO TO MARKET 1: Tomasz Tunguz from Theory Ventures shares key insights on the evolving GTM landscape for SaaS. This is a great read full of good nuggets. TL;DR: 14-day trials convert best for free trials; Assisted sales (for example, follow-up from sales reps on trial leads) can boost conversion rates by nearly 4x, and Payback Periods and Quotas are both up in parallel (and AI isn't impacting conversion rate or ARR growth). The big takeaway is that to maximize SaaS growth focusing on enterprise NDR (Net Dollar Retention) targets of 120% is, like, the best idea ever. 3. GO TO MARKET 2: ICONIQ has a GTM report out for 2024, showing that ARR growth rates have slowed, particularly for companies under $200M ARR. Sales productivity is also down for most companies, though those over $200M ARR saw gains. 54% of companies use PLG (up from 40% in 2023). Partnerships drive significant revenue for companies over $100M ARR, with three-year contracts becoming standard. 4. OUTBOUND vs INBOUND: How you handle an inbound lead vs an outbound lead is quite different. Check this article from Jack Jorgovan on how Outbound leads differ (and how to close them). The team at predictable revenue have been running over 50 outbound sales experiments to find out what works best (and what doesn't.). Watch the whole series on YouTube. SaaS Weekly also has a guide on automating outbound emails by leveraging intent signals to drive better-targeted campaigns 5. PRODUCTIVITY: Tomasz Tunguz makes a second appliance this week, highlighting AI's accelerating impact on business. As companies increasingly allocate budgets to AI (41% from new funding), those that best embrace AI's chaotic nature and measure outcomes will lead the next wave—and that may already be priced into public companies. 6. PMF: Product-Market Fit is a spectrum and a gradual one, moving through stages of demand, customer satisfaction, and efficiency. Success means balancing high customer needs with scalable growth. Check out this dynamic scale - it's pretty interesting as it enables measures across multiple dimensions. 7. CAPITAL 1: Because we are in a weird time of Venture Capital (and the length between rounds is now much longer than a couple of years ago), we should all know the round-between-round differences: bridge rounds, extension rounds, and in-between rounds. 8. CAPITAL 2 (seed): AngelList data shows that, on average, seed-stage companies have about 18 months to secure a Series A. Because if a startup isn't marked up by then, it's likely to stall. 9. GPU WARS: Earlier this year, I referenced the start of the "AI Wars" for public cloud. But check this article from Tomasz Tunguz; we're going deeper into the GPU Wars. AWS's AI business is growing at triple-digit percentages YoY. But they are also saying that growth is limited by GPUs. Amazon and Google are also developing their own chips. 10. CASE STUDY: How many hours should founders work? Check out this analysis of YCombinator Founders. It's a 3-part series, but a good TL;DR is that pre-product-market fit founders work the most hours, with time spent decreasing as companies grow and gain traction. For many of us, it's a good read for a) Validation and b) Tips on managing work and time. POD OF THE WEEK: There is way too much really valuable info in #2 above, and Tomasz Tunguz presented all of this in a great SaaStr presentation earlier this year, which you can watch here. 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. 1. SaaS METRIC OF THE WEEK: What KPIs do venture firms consistently care about across stages? This article highlights how KPIs evolve from early traction metrics like CAC and LTV to more advanced indicators like NRR as companies scale and also shifting into survival metrics like cash runway to operational efficiencies.
2. PATTERNS: The Data-Driven VC looked late last year at what data patterns can be analyzed across successful startups. Super interesting read, but TL;DR: most important is the number of executives, the split of business versus tech roles, the split of male versus female founders, and their age and degrees. 3. GROWTH: There are so many nuggets in one little post that summarizes the ChartMogul SaaS Retention Report mentioned in the newsletter a couple of weeks back. SaaS growth slowed in 2024 as it's harder to come by, and expansion is driving 40% of ARR growth for companies with $15M-$30M ARR (it was 30% in H1 21). Achieving 100%+ NRR is harder as subscriber counts grow. Good retention is key. 4. GTM: Earlier this month was the SaaStr Annual Conference, and during the event, Tomasz Tunguz the Theory Ventures team launched their 2024 Go-to-Market Survey results (you can also download the PDF here). This new annual survey looks at the state of SaaS sales and marketing strategies. Some super interesting observations: The perceived gains of AI are high, but that hasn't translated into conversion rates (yet); sales cycles are lengthening (with a median sales cycle now 12 days longer, which has a knock-on effect for payback periods, which are up by 12% average. 5. SALES TRANSITION: Moving from founder-led to AE-led sales? This article from Bain Capital Ventures makes the case that it's all about the "MVP/ICP Handshake." Nailing the alignment between your Minimum Viable Product and your Ideal Customer Profile is a crucial step. Without this, bringing in AEs too early can stunt growth (which has been seen time and time again in startup land). Solidify the customer segmentations and product-market fit before even thinking of adding a sales force. 6. FUNDING: According to CrunchBase, August was a slow one for Venture, hitting the lowest point of the year, with $18 billion raised (a 36% MoM decline and a 23% drop from August last year). AI and healthcare remain the leading sectors, propping everything else up, with AI companies alone raising $4.3 billion. North American startups scored 66% of the total funding, continuing to dominate, but any kind of exits or IPOs remain sluggish. 7. PRODUCT-MARKET FIT: A long-running general rule (called a Growth-ism) in the Startup world is that getting to $1m of ARR is a strong sign of Product Market Fit (PMF). Kaitlyn Henry from Openview runs contrary to this Growth-ism, stating that there's no specific revenue indicator that defines PMF, but she also continues to write about concrete signals of PMF available beyond a $$ amount and gut feel. Read more about all those signals here. This sits well with Brian Balfour's work, who wrote an amazing article on the subject that is now almost 10 years old and still incredibly relevant for figuring out what stage(s) you may be at. 8. JTBD: Jobs to be Done is one of my favorite frameworks - it's a way to make the process of innovation accessible and tangible in very pragmatic ways. Take a light read here on a lightweight JTBD framework - broken down with real-world business examples; you can also skip straight to the templates. Or go for the more comprehensive one here (that also has a template). Theory Ventures 2024 Go-to-Market Survey. 9. CONVERSION LESSONS: After reviewing 20,000 website conversion experiments, Kyle Poyar and co from Growth Unhinged's show that less is more. Simple, clean designs beat complex features like social proof, homepage videos, and strikethrough pricing, which often hurt rather than help conversions. If you're looking to improve site performance, keep it chill! 10. CASE STUDY: Ok - looking at #7 above - what could Product Market Fit experientially look like? Asking the PMF question, in my opinion, is always the nobler focus (as opposed to being focused on answering the question). But sometimes - you just gotta know! So here is a case study on how Superhuman did it. POD OF THE WEEK: It's a bit of a long one (coming in at almost 2 hours) - but SEO is changing fundamentally (and it's something I find quite fascinating and also equally annoyed by), so Lenny's Podcast interviews Eli Schwarts (an SEO consultant)covering how to re-think SEO in the age of AI. 1. SaaS METRIC OF THE WEEK: It's time to rewatch a video that should be Mandatory for onboarding every person in a SaaS company. It's from David Skok (a legend in the SaaS world) and covers hardcore B2B SaaS metrics such as Rule of 40, Repeatability, Net new ARR, Bookings, LTV:CAC, churn, etc., etc. - it's a metric-packed 20 minutes.
2. EQUITY: This bookmarkable series from Femstreet covers the startup founder's guide to equity. Don't worry about Part 1 - it's a very basic primer. The good stuff starts in Part 2 and covers the different types of equity at a startup (founder, investor, vesting, liquidation, pro-rata, etc, etc) and Part 3 - covers cap tables and things you can do if they are messy. 3. INVESTORS: Following up from above - the motherlode! Check out this Ultimate Investors List of Lists from The VC Corner. This list includes everything from venture capital firms to family offices, active angel investors, Corporate Venture Arms, and accelerators. Bookmark now! 4. CLOSURES 1: Startup closures continued to rise in 2024, and Q1 saw a record 254 startups shutting down, according to Carta. Check the graph - it's pretty alarming. This is a 58% increase from last year and came after a 124% jump between the first quarters of 2022 and 2023. It's hard to find updated data, but it looks as though this momentum has continued into Q2. 5. CLOSURES 2: And it's not just Startups. According to Equal Ventures, the VC landscape is facing consolidation pressures as large firms dominate the capital flow. In 2024, 44% of VC funding went to just two firms, and many smaller funds may not survive. The article predicts that 30-50% of venture firms could disappear, leaving the VC world increasingly homogenous and less innovative. 6. VENTURE: In another Carta report, the State of Private Markets: Q2 2024, we get a mixed bag of sentiment (this is for U.S. private startups) - mainly cautious with some whiffs of optimism: Median valuations increased somewhat across stages, but deal volume remains low. Early-stage startups are particularly affected, with fundraising still tough. Seed-stage valuations rose slightly, but it's still a volume problem, as the number of deals dropped significantly. Series B and C valuations are looking good, with Series D seeing a 200% increase. Adding in data from Crunchbase as it's taking longer and longer to close rounds (28 months' median time between Series A & B funding). 7. CUSTOMER SUCCESS: Great question: Where Should Customer Success Sit on your balance sheet? This article from Mostly Metrics answers whether CS teams should report to Sales or Product or operate independently. The answer? It depends. So read through because you may need to take a more flexible approach. 8. TERM SHEETS: Bookmark this for future reference. This Term Sheets guide explains the most important clauses—like valuation, liquidation preferences, and anti-dilution protections--it also offers some strategies for negotiating more founder favorable terms. 9. B2B MARKETING: Why do most B2B marketing plans fail? According to this article, it's because of "random acts of marketing." Complete lack of clarity is the main culprit. Then, they provide the goods with a structured approach. The article also has a helpful B2B marketing plan template with steps for planning long-term initiatives. 10. CASE STUDY: Adding onto #6 above, here are 15 SaaS Marketing Campaigns that had some pretty innovative strategies. This includes examples from Dropbox, Mailchimp, and Slack. POD OF THE WEEK: All about SAFEs - this podcast has pretty extensive conversations on fundraising with SAFEs, liquidation preferences, and the relationship between founders and lawyers. 1. SaaS METRIC OF THE WEEK: Growth Endurance Score (GES). This is a new one for me, and it's a metric that assesses a company's ability to sustain growth over time (something I have been discussing quite a bit lately, trying to maintain my own growth momentum). GES measures this efficiency by factoring in both net retention and customer acquisition efficiency. A high GES correlates with long-term business health and resilience. This score provides valuable insights for businesses aiming for consistent, sustainable growth. Bessemer has drilled deeper into it and Bessemer and plotted ARR growth lost YoY, and found that the decay is fairly predictable at 30%. That's a benchmark. In other words, you should expect next year's growth rate to be 70% of the current year as the stakes get higher.
2. GO TO MARKET: Go-to-market motions can be pretty specific and your GTM motions can impact your marketing strategy and your org chart. Robert Kaminski has distilled GTM motions into 5 types in this article based on a number of use cases; the summary diagram at the bottom is great. 3. NET REVENUE RETENTION (NRR): NRR is one metric I'm a fan of and has become a new modern gold standard for SaaS growth. So much so that ChartMogul now has a trends and benchmark report: industry average NRR ranges from 90% to 100%, and the top-performing SaaS companies achieve NRRs 120%+. It's an action-packed NRR report, though, with lots of fantastic insight. 4. CHANNEL: If, like me and a lot of other enterprisy B2B SaaS, channel-based partnerships are something you want to explore, take a good read of BVP's guide to building SaaS channel partnerships. Selecting the right partners, aligning incentives, and establishing clear communication and training protocols are all included. 5. SAFEs: Last month we reviewed how much dilution founders typically experience during SAFE rounds. But how does that reflect how much equity founders typically give up during these SAFE rounds? Check this short but sweet Carta article with data on the average valuation cap by stage and fundraise size. For example, raising $250K-$499K ("Angel Round") often comes with a median valuation cap of $8M, while $5M+ rounds ("Jumbo Seed Round") see a median cap of $36M. Founders should focus on ownership dilution as much as valuation caps to understand the real impact on their equity. 6. AI: There are some fancy charts in this University paper on ChatGPT use: Journalists, developers, and marketers are the highest users of ChatGPT compared to other roles. Here is some great revenue data for the big AI players, as well as the Top 100 AI Consumer apps according to a16z. 7. SPEND: Kinda bleeding out of #6 above, AI vendors like OpenAI are leading first-time purchases and a sharp increase in AI-related AP spend, according to this great business spending report from Ramp. Companies are also leaning into independent contractors and pulling back on advertising, indicators of a more cautious approach as economic uncertainty continues for most. This shift toward AI and flexible labor indicates where companies see value in the current market. 8. PITCH DECK: I know pitch deck posts are popular here because creating the perfect pitch deck is every Founder's stress-dream. Data-driven VC offers some data drive insight on optimal decks from startups that nailed their presentations, highlighting key elements like storytelling, market validation, and financial projections. 9. PIPELINE: Looking for some inspiration to build additional pipelines for the rest of the year? The Growth Unhinged Blog has some inspirations for you to review. 10. CASE STUDY: Talk about diversification - with thin profit margins on their primary business, Uber has now diversified heavily into advertising. They are generating $1b in advertising revenue, according to their Q2 20224 report. POD OF THE WEEK: Last week's Founder Led Sales post was a popular one - so here is a great Pod covering Founder led Sales and why PMF, problem solving, getting those early adopters, and invalidating things are all best done by founders. 1. SaaS METRIC OF THE WEEK: ARR per FTE: Capital Efficiency is a new-fangled metric we all want to track in these LeanOps times. Benchmarking this - the median is $143K per FTE according to the 2022 KeyBanc Private SaaS Report. With public companies, it's double that, according to data from Maritech, and Kyle Polar from Openview breaks this down to tell whether you're on the right track.
2. COMPENSATION: Kruze Consulting has a great article, with a calculator and awesome visuals, covering startup CEO Salaries based on data collected earlier this year. YoY salary is beginning to recover (but the data is diluted over a longer time between stages). Sadly, the gender gap persists. The data tracks well with a report from June 3. PITCH: Last week's whopper guide on Raising was popular, so here is a little bit extra: Need to craft some super effective pitch decks? Take a look at this "Pitch Deck eBook" by Deck Doctors and Hustle Fund, covering all the pitch deck's greatest hits: problem statement, solution, market opportunity, business model, traction, and team. (Real-world examples and insights are also included.) 4. CAPITAL EFFICIENCY: Capital Efficiency is back in Vogue (see #1 above and also #5 and #6 below)! According to Bessemer Venture Partners, here are the benchmarks for B2B SaaS to measure your payback against (full report here). Across all companies, Engineering is consistently the largest department, Customer Success and Product at about 10% and Marketing at only 7%. This slide also has median headcount by stage - which is a great metric to track. 5. SPEND: Question - How much do you plan on spending on your future operational plans? SaaS Capital has a wonderful B2B SaaS Spending Benchmark report to best forecast what to send on sales, marketing, CS, COGS, and R&D. And because 2024 will continue to be your year of LeanOps - here is how to manage burn and extend your runway into 2024 from Capchase. 6. ACCOUNTING. Check out this excellent guide from the SaaSCFO that covers key aspects of SaaS Accounting, such as recognizing revenue, managing deferred revenue, and tracking key metrics. It emphasizes what can sometimes be a bit of a disconnect, which is the importance of aligning accounting practices with our SaaS-specific challenges to make sure we have the right SaaS financial reporting to support good business growth. 7. DEVSECAIOPS: This is not a real port-port-portmanteau. I just made it up (you're welcome). With AI transforming every landscape, AI security is unavoidable and a crucial problem for builders and integrators to solve. This article dives into how enterprises are securing AI/LLMs, highlighting the shift towards security for AI (DEVSECAIOPS), with categories like governance, observability, and security leading the charge. 8. FOUNDER-LED SALES: I've had some healthy discussions on this over the past few weeks: Founder-led sales is a well-documented part of the startup journey, especially in the early days and often with very inexperienced or more technical founders. Here is a great article (with Engineering-based analogies) on how Founders can mentally re-frame and execute an excellent sales program. Here is a great diagram that summarizes how this works as you scale - do not skip steps (especially Step 2)! 9. PERSONALITIES: No one wants high-performing assholes - and there is now data to prove it! This article from The VC Corner explores how a founder's personality traits impact company culture, decision-making, and investor confidence. Resilience, vision, and adaptability can make or break a startup. Also - good news for you cool people: "Hipsters," "Hackers," or "Hustlers" are twice as likely to succeed. 10. CASE STUDY: Expanding on number 8 above, here is a list of 10 Founder-Led Sales lessons learned with a recent roundtable from Race Capital. POD OF THE WEEK: Generative AI won't take over your job anytime soon, but coding skills may become less critical in the future, according to Paige Bailey of Google. 1. SaaS METRIC OF THE WEEK: CUSTOMER SCORECARD - This article from ProductLed introduces the "Customer Scorecard" and highlights the power of a key metric, the "North Star," to align team and user interests.
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 incredible playbook for scaling. In this detailed book, Mark has defined different stages of scale, established quantifiable measures for each stage, 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. VENTURE-STRAPPED: This is a Top10inTech-ism for your tech dictionaries for a hybrid startup that is a mash-up of the old debate of bootstrapped vs. VC financing and applies to startups who raise only once. Which anecdotally seems to be a more common practice in these new market conditions (including Klaviyo and Zapier). Jason Lemkin notes this new one-and-done third way. 4. VALUATIONS: Despite the economic doom and gloom and VC challenges, early-stage companies are seeing high valuations driven by strong investor interest, especially with AI still frothy, but also in biotech. 5. 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. 6. AI (SALES): AI sales reps are seeing rapid growth, but VCs look to be cautious due to long-term sustainability concerns and competition from incumbents (Salesforce has released agents that execute tasks such as answering inbound lead questions and booking meetings (RIP SDRs?). 7. RAISE: Whoa - a whopper guide (149 pages) that provides actionable insights for navigating the complexities of raising capital, covering investor relations, pitching essentials, market awareness, and the fundraising process. 8. PLG: Bessemer Venture Partners outlines an updated-for-2024 ten key principles for driving product-led growth (PLG); it's all about user experience, data-driven decision-making, and seamless onboarding. The article also touches on the need for continuous product iteration, clear value communication, and alignment of the entire organization around PLG strategies. 9. IT SPEND: Last week's copy of Clouded Judgement took a look at how Generative AI could double software's share of IT budgets (from roughly 25% to 50%). This increase would also result in a reduced headcount and outsourcing spend as AI-driven solutions become more integral to IT strategies. And in a separate report from IDC, worldwide spending on AI is forecast to hit $632B by 2028. 10. CASE STUDY: ONBOARDING: Kate Syuma breaks down key behavioral principles and dark patterns in user onboarding, with examples from Dropbox, Figma, and more. Learn how to optimize onboarding to improve user activation and retention. BONUS: The article also offers insights from "The Holistic Growth Playbook," including a deep dive into user psychology. POD OF THE WEEK: A great episode of Carta's Data Minute that covers how VC investment strategies work, pre-seed deals, the differences between multi-stage and small funds, and how SAFEs and pre-seed investing have changed. 1. SaaS METRIC OF THE WEEK: Metric plot twist: ownership. Let's say you have done the hard work and clearly understand the metrics you want to measure in your business. So go check this framework for assigning metrics ownership within teams. After all, clear ownership helps drive better performance and data-driven decision-making.
2. REVERSE TRIALS: Crack open up your tech dictionaries to add in this term. Reverse Trials are a play on freemium, where new users start with a time-limited trial of all your paid features. At the end of the trial, they can either buy or downgrade to a fully free tier - this article also explains how Airtable does this well. The benefit here is that, emotionally, the users experience loss aversion, where the pain of losing something is twice as powerful of a motivator as the pleasure of gaining. 3. PRODUCT MARKET FIT: A big Startup-ism - More than 50% of the time, the lack of Product-Market Fit (PMF) factors into the reason a startup fails (keep reading this article though, as it goes through how StartupOS figured their PMF out). AirTree (an early-stage VC) has just published this article taking a look at what metrics VCs like them look at for signs of Product-Market Fit - and also what the red flags are. Also, this article has some great PMF definitions. PMF was called "the only thing that matters" to early-stage startups by Marc Andreessen 12 years ago. Now his team get a little more nuanced, suggesting to focus on Product-User-Fit as an indicator towards achieving PMF. A similar nuance is also true post-PMF with repeatable-scalable revenue models as a precursor to a repeatable-scalable business model (you know - the one with actual profits). 4. SEO: OK - rant time. It's actually more like S.E.Oh-No. I grow increasingly frustrated with Google Search and how the whole internet has gone to shit. It's gone even more to shit since last November, with changes to the Google Search Algorithm, which prioritized results from Forums such as Reddit and Quora (Side story - that created its own AI Hallucination Flywheel). So now brands are exploiting these forums, turning them into marketing channels and further diluting the authenticity of user-driven discussions. Can we not just have one thing?? This shift in Google's algorithm makes finding genuine, unbiased information harder as forums become overrun with brand-driven garbage-town content. Bring on SearchGPT! Time to optimize your website and keywords for Conversational Queries. 5. GTM 2.0: Now that tech companies are expected to show a balanced growth/efficiency strategy, what does that look like from a Go-To-Market Metrics standpoint? Growth Unhinged has you covered with a revamped approach to GTM metrics, spotlighting KPIs like CAC Payback, SaaS Magic Number, and Gross Margin and how to optimize these metrics for sustained profitability. 6. P&L + COGS: SaaS P&Ls are structured in specific ways, as 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 for COGS as well as how to structure a SaaS P&L. According to the Author - 90% of them are structured incorrectly, 5% are close, and 5% are correct. 7. TITLES: Earlier this week, I discussed the importance of titles in startups with a startup co-founder. Titles shape perceptions, both internally and externally, influencing early team dynamics and culture. Stay away from the C-Suite title sinkhole early - this article outlines why titles in startups should not be ego-stroke labels but strategic descriptions to reflect the stage and structure of the biz. 8. VENTURE: VCs are facing a challenging moment, with many looking to exit their investments as the market cools and layoffs happening internally. Rising interest rates, slower growth, and reduced valuations drive the trend, prompting a reality check among investors (with a 50% drop in funds being raised from 2021). This is a big shift in VC sentiment. I don't know how permanent it will be, where the focus is now on sustainability and profitability, and I'm not sure what that will do downstream to fund returns. 9. COMPENSATION: The Carta State of Startup Compensation report for H1 2024 is out, and it looks like benchmarks have remained flat since H4 2023. Companies are also much leaner across the board. For example, seed-funded startups had an average of 5.3 employees, down from 6.9 in H1 2021. 10. CASE STUDY: Scaling your Dev team by Stage. Bessemer Venture Partners has a great article on scaling your dev team from 1-10, 10-20, and 20-50. POD OF THE WEEK: Expanding on #9 above, Carta and Waseem Daher of Pilot discuss what founders should pay themselves, among other great SaaS financial metrics. 1. SaaS METRIC OF THE WEEK: 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 is "back from the dead." This year, it's increasingly essential but a very tough bar to continually achieve Quarter on Quarter (but see #3 below).
2. JTBD: Jobs to be Done is one of my favorite frameworks. It makes the innovation process accessible and tangible in very pragmatic ways. Take a deeper read here on a lightweight JTBD framework—broken down with real-world business examples—or skip straight to the templates. 3. PROFIT MARGINS: Great Rule of thumb from CJ Gustafson at Mostly Metrics this week, who states, "Make sure your target model shows +25%" bottom line at scale." This Rule is excellent for a number of reasons: It demonstrates a sustainable business model (not just a business with a revenue model), you can still plow 30% of revenue into sales and marketing, and you only need to grow 15% per year to achieve the Rule of 40% (see #1 above). Keep reading the article; he also outlines a few businesses with varying profitability ranges. 4. AHA!: Not talking about the Band. Take a look at this great 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 really focuses on the concept of long-term retention. Go-Practice has a great complimentary article on how to design for Aha (with examples). 5. CLOUD 100: Bessemer Ventures/Forbes created a "Cloud 100" list a few years back, an annual ranking of the world's top private cloud companies in its ninth year. The 2024 list is out, and things had already started to look different last year with the first-ever drop in overall aggregate value. This year saw a bounce back to strong valuations (median valuation of $1.7B), with companies staying private for longer (but demonstrating sustainable growth at scale - see #3 above). These top cloud companies had a median ARR of $170M and multiples at 23x. FUN FACT: A former Bessemer Ventures Alum just won 2 Olympic Gold Medals for the U.S. in Cycling after picking up a bike for the first time in 2017. 6. VENTURE 1: Last month, according to Crunchbase, VCs invested $23B+ into startups, it's a slight dip from June but a 20% rise YoY. Healthcare and biotech led ($6B), while A.I. funding at $5.8B (but this doubled for Q2). A.I. companies are absent from billion-dollar acquisitions as tech giants are opting for strategic licensing instead for now (to bypass regulatory hurdles). 7. VENTURE 2: PitchBook just released its quarterly U.S. Valuations Report and, as reported last month, there are a bunch of mixed signals: Flat and down rounds hit a decade high; median valuation growth for early-stage A.I. is a whopping 115% (see #9 below), which probably helped the average early-stage valuations to nearly double from 2023 ($169m) 8. A.I.: Always lots going on, but are we in an A.I. bubble yet? (there is definite over-investment, but maybe not a bubble yet.). Here is an estimated breakdown of OpenAI's revenue (55% B2C, 21% from B2B, and 15% B2D). But Chat A.I. isn't at PMF yet, even though 70% of us use it all the time. 9. GLOOM BOOM: Andrew Chen makes the case that starting a company in a recession is super advantageous. There is less competition, lower costs, more focused investors, etc. Founders can build stronger, more sustainable businesses and also be positioned for serious success when the market recovers. 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 a great brand approach to helping Marketers with #3 above: sustained and capital-efficient engagement and reach. POD OF THE WEEK: A great podcast featuring Brian Halligan, co-founder and former CEO of HubSpot - consensus is the enemy of scale and other great snippets! 1. SaaS METRIC OF THE WEEK: CARR - Contracted Annual Recurring Revenue. This is a forward-looking SaaS revenue metric that estimates the maximum revenue size of a SaaS company, measuring current recurring revenue from your SaaS P&L and future revenue that sits in newly won customer contracts.
2. AGILE MARKETING: Hold on to your hats, Marketers - Agile processes are coming for ya! This is another one for our Tech Dictionaries - it's how to really validate learnings, make mistakes, and deliver impactful results. Hubspot covers this concept in detail and outlines how DoorDash hardcore-leveraged this methodology to increase revenues from $885m to $2.89 billion in a YEAR! 3. MARKETS 1/2: Earlier this year (see #8 here), Sapphire Ventures released their State of the SaaS Capital Markets report. They are now back with a mid-year update to see how some of their SaaS Market prediction (both public and private) are holding up. Flat and down rounds, Investments in AI, Unicorn creation slow down, and Efficient growth are all things that are tracking well. But a measurable increase in multiples, the re-emergence of Growth Mindsets, VC funding growth, and IPOs are things they either got wrong, or it's still too early to tell - great read! 4. MARKETS 2/2: Also, take a read of the full report; there are some other metrics of note in there outside of Sapphire Ventures predictions: Growth has fallen to 13% average, this is the lowest rate on record. But funding is on track to surpass 2023 levels - all driven by substantial AI investments. There was also a 21% increase in M&A compared to last year, with significant SMB deals - consolidation trend? 5. CYBER/CLOUD: With all kinds of outage drama happening lately, it's time to hammer this home: Regardless of the size of your SaaS business, security and redundancy should be part of your dev cycle, but know your weak spots well. Founder Institute discusses 6 points of vulnerability in a tech stack that may be a bit leaky. Security needs to be rolled up into the process - DevSecOps being the port-portmanteau, or is that SecDevOps? Heavybit has a great article discussing cloud security challenges (as apparently, if we extrapolate this data from #4 above, 88% of SaaS is now sitting on public cloud). This infographic from Genuine Impact shows how that is distributed in Public Cloud, with Amazon's AWS (and specifically US-East-1) taking on the brunt of that. 6. DEATH (of the internet kind): This post from Noah Smith explores historical trends, current challenges, and future opportunities in the internet sector - insightful stuff to lull on. Despite recent downturns, the long-term potential remains strong, driven by ongoing innovations and shifting market dynamics. 7. HOMEPAGES: IS your homepage a barrier? This article makes the case that it quite possibly is (as potential users want to get their hands on the end product as quickly as possible) - it's a time to value play across PLG and classic Sales lead SaaS. 8. DEV-REL: Dev Relationships are a real things. Developer happiness (and corresponding productivity) are important to measure. There are two primary frameworks for measuring developer productivity: DORA (also the GitLab source) and SPACE - a more holistic framework for productivity. And guess what - we're terrible at it because, according to this new Stack Overflow survey, the majority of developers hate their jobs. And it's not because of AI. It's old-school failed expectations and technical debt. 9. CONTRADICTION: Point Nine Capital discusses the importance of embracing contradictions in business and also uses one of my new favorite phrases, "Startup Advice Industrial Complex". Startup Leaders should balance conflicting priorities, such as growth vs. profitability and innovation vs. stability, to drive success. In theory, understanding and managing these paradoxes should lead to more resilient and adaptable companies (and teams). 10. CASE STUDY: Do your profit margins need a tweak? Here are 40 strategies for improving your profit margins from Sameer Dholakia, with a case study on SendGrid (from high burn to growth and IPO). POD OF THE WEEK: Lessons from product scale guru Brian Tolkin on scaling Uber and Opendoor. 1. SaaS METRIC OF THE WEEK: CLV. How far out should you calculate your customer's lifetime: two years, three years, five years? It turns out that the shape of the decay curve matters, as does the maximum customer lifetime.
2. ESOP: Employee Share Option Plans are a wonderful idea to incentivize and retain great staff, but under the hood, ESOPs are complex, especially with changing valuations, both positive and negative, in today's market. Check out Airtree Venture's best practices for communicating the value of ESOP to teams. This article also has a bonus financial model template (value calculator, salary package calculator, and vesting schedule). Check this cheat sheet for common ESOP terms. 3. ESOP BENCHMARKS: A fast follow from above is this wonderful site that has compiled a set of Option benchmark data comprising over 20,000 option grants from more than 1,650 startups across the US and Europe sorted by Seed or Venture stage. Carta has also recently done the math and found that for seed-stage valuations ($1M to $10M), the median pool size is 12.9% 4. UNDERSELL: If expansion fits into your growth strategy (it should), take a read of Tomasz Tunguz and Bill Binch's two-part series. Part one is about deliberately underselling as a sales strategy to minimize churn and increase upsell/expansion opportunities as a land-and-expand strategy. Post 2 is an expansion of land-and-expand that details how to structure a Startup sales team for optimal land-and-expand. 5. OUTAGES: Since the Crowdstrike incident (who are now being sued for half a Billion by Delta Airlines), we have now had two more major outages this week, one from AWS (which impacted Xero at end of month, and the like) and yesterday from Microsoft, which took out most of their products for about 10 hours. This will heavily impact Cloud/SaaS providers' trust as businesses fully realize their cloud dependency and rethink their tech stack strategies. Now is an excellent time to front-foot your architecture. For techies, Google actually has a great article on architecting disaster recovery for cloud infrastructure outages; here is a good DR Plan article and a good template. 6. PRICING PAGES: Check this article from MKT1 on why a plans and pricing page on your website is necessary. This is a great article from Chart Mogul outlining why pricing is the centerpiece of any startup/growth company's monetization strategy. They 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? Free Trials, all with great case studies. 7. DATA PRIVACY: Tracking and personalization have historically been a big part of marketing efforts via tracking Cookies. But regional legislation (such as GDPR and CCPA) and the death of Third Party cookies have changed everything. But Google has given up on killing Cookies, which they have talked about doing since 2019. Remarkably, they plan to keep third-party cookies and "introduce a new experience in Chrome that lets people make an informed choice" - some kinda Cookie opt-in thingy. Indiehacker dives deep into how to track users ethically. 8. SEARCH: I gave a talk on AI last week that brought up the idea of the demise of Google as a Verb (I Google less due to LLMs, which are often more efficient at solving my problems than a Google search), OpenAI followed my lead this week with the announcement of SearchGPT, something that ARC Search has been doing for a while (and I like). BTW - this shit is expensive, with OpenAI looking to burn about $5B this year (yes, Billion). On this news, Microsoft also announced that it's testing a Bing generative search experience. 9. SAFE NOTES: Oh - here are some great data points! Carta ran some numbers this week on SAFE notes, looking at how much is sold in a SAFE round. <$500k is about 7%, up to $1m is 11%-ish, $1-$2.5m is about 16.5%, and $2.5m -$5m (whoopers of SAFE rounds) are 21.4% 10. CASE STUDY: Pricing Pages (see #6 for more)! MKT1 reviews some pricing pages from Count, Klaviyo, and Lattice and here are 13 more from The Good. POD OF THE WEEK: From SaaStock, Tim Schumacher, co-founder of saas.group, shares his insights on exiting your SaaS business. 1. SaaS METRIC OF THE WEEK: MRR: According to this article, there are only five types of MRR growth that hinge on expansion and reactivation. Chartmogul takes a more emotional approach to MRR segmenting (new, happy, and at risk). MRR is a simple concept until you actually need to compute it. Benchmark your MRR here.
2. MARKETING: There are many marketing strategies organizations can deploy that are relevant to their line of business and target audiences, from pay-per-click to content marketing. Bloom lists the differences between the three main categories. Cutting to the chase, though, creating a solid marketing strategy is no walk in the park, so look here at how to make a solid one in 7 steps. (BTW - benchmarking budget - Marketing teams spend 5-10% of a company's ARR). 3. 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. 4. INDUSTRY: Public software markets saw some sharp declines last month, and according to Tomasz Tunguz, it was all due to declining revenues. Growth rates for many public tech companies have halved in the past 18-24 months (even though revenue increased from $124B to $592B. Giants like Salesforce face growth challenges, but private market data still shows strong potential. 5. SALES: Do technical products need a different sales process than traditional enterprise SaaS products? Check out this guide on Tech SDRs. Understanding developer needs is key for these reps to selling DevTools efficiently. 6. VESTING: Different companies have different vesting schedules to align employee incentives with long-term goals and retention. Levels.fyi explores some different strategies, highlighting approaches like front-loaded, milestone-based, and retention-focused plans. 7. PITCH DECK: Another pitch deck resource this month from Alexander Jarvis, who hosts almost 540 of them (and 10,000 pages)! The cool feature here is that you can search/filter startup decks by stage, topic, and country. 8. RED QUEEN EFFECT: I'm running my first presentation on AI this week, and during my research, I came across this great article from Clouded Judgement talking about AI and its impacts. The Red Queen Effect analogy was used, referencing Lewis Carroll's "Through the Looking-Glass," where the Red Queen says, "It takes all the running you can do, to keep in the same place." I couldn't agree more, and neither can the 85%-ish of B2B SaaS companies currently building AI into their product sets. Businesses must constantly invest and evolve to stay competitive. Immediate benefits may not be clear, but long-term gains in efficiency, innovation, and market relevance are highly likely. The potential downsides to not doing all the running you can do are massive. 9. DISASTER: If you were not sleeping under an IT rock last weekend, you probably noticed that many Tech Workers had a VERY insane week fixing a massive global Windows outage caused by just one publicly traded SaaS Company, Cloudstrike. From many accounts, it was a total shit show of anti-malware malware that poor or ill-prepared Business Continuity Plans, lack of redundancy, and risk management compounded. This was the real Y2K, 25 years late, and today is the second-best day (the best being before last weekend) to revisit your BCPs; check GitLab's BCP for an example of a real one. Here are some teachable lessons for all of us. Ironically, Crowdstrike has a great incident response checklist. 10. CASE STUDY: Reaching 100 users in four weeks? I'm in! This is actually a great, soon-to-be 3-part series on growth, with this first part focusing on the cold-start problem of going from 0 to 1000 users. POD OF THE WEEK: Building a world-class data org from Jessica Lachs of Doordash. |
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