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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: ARR. Two cool publications. The first one was sent from a buddy of mine, "The Ultimate Guide to ARR," which offers practical advice on measuring, influencing, and reporting ARR based on experiences at Intercom, Atlassian, and Stripe; the second one is from Bessemer Ventures and claims to be a founder's roadmap to $100 million ARR.
2. MVSP: Here is one more for your tech dictionaries - MSVP stands for Minimum Viable Secure Product. This is a simplified security checklist for B2B software and outsourcing providers. It outlines essential controls to ensure a minimal yet effective security posture. Not quite the SOC/ISO/APRA level stuff some of us have to deal with - but great for those of you outside of Enterprise and Financial Services. 3. SHAPE UP: This is the annual refresher for your tech dictionaries and reading list. Software product development requires innovative strategies based on today's cadence expectations of continuous integration, micro-services, feature delivery, and scale. The team at Basecamp (I'm an old-school fan) has developed ShapeUp, their publications, and toolbox of techniques designed to eliminate chaos when it comes to designing, prioritizing, and shipping products/features. 4. SEED: Carta's latest report takes a look at investments into pre-seed/Seed Stage companies - SAFEs are the most common instruments in pre-seed financings, most pre-seed rounds are around $1M, and the typical valuation cap is $8-$10M. 88% of pre-priced rounds use SAFEs instead of convertibles. This underlines the ongoing shift towards more flexible and founder-friendly funding mechanisms. 5. INVESTMENTS (AI): Silicon Valley/Bay Area is still dominant and secured more than 50% of all global investments into AI startups last year, according to Crunchbase (and that's nearly double the prior year's total: $27B vs. $14B). Despite repeated claims of its imminent demise throughout the years, Silicon Valley ain't going anywhere anytime soon. 6. INVESTMENTS (AI): The bubble builds? AI valuations are soaring big time, with early-stage AI companies valued above $70 million and late-stage at around $100 million in Q1 2024, according to this PitchBook report. While the rest of us in the VC landscape see an increase in flat and down rounds, AI remains a top focus for investors. Some investors out there (such as Sierra Ventures) are calling for a more diversified approach within AI and caution against the short-term hype we have seen a few times before. There are already some signals that not all is well. Gross Margins may not be that great, either. 7. GROWTH: Coming off the back of last week's quite popular post on Growth Marketing - is it even marketing in the first place? I like this find, and I've been sitting on it a little while - but share it with your marketing team: The Strategic Growth Calendar Framework is a year-long blueprint that combines "Always On"growth channels with impactful "Marketing Moments." Emphasizing integrating steady, foundational channels like SEO and email with high-impact campaigns such as product launches, events, influencer collaborations, and the like. Aligning these strategies with seasonal demand over your calendar year optimizes planning and (hopefully) continuous/steady growth throughout the year. 8. AI LEAD GEN: I had a bit of a unique GenAI moment this week, my first inbound lead from ChatGPT and hopefully not the last. Do we need a form of LLM SEO? Meta is also now sticking generative features into its core advertising platform, which lets ads be generated programmatically. The big question here: Will my organic traffic disappear because of AI? 9. ADVISORS: Startups need them; often they can be a little over plentiful and a little predatory. If you find a sound advisor, how should they be compensated? Peter Walker from Carta has some data for you. TL;DR market rates are 0.23%-0.07% median based on stage unless full-time hires who get 1% typically. 10. CASE STUDY: Squarespace is now part of the $1 Billion+ ARR Club with $1.1 billion in annual revenue. They have also decided to delist and go Private. At private sale, they were valued at $7 billion, which works out to be about 6x ARR and growing nearly 20% YoY. POD OF THE WEEK: Adding onto #1, Funnel and revenue math kindly explained by Mark Roberge and Matt Plank of Rippling in the Science of Scaling podcast. 1. SaaS METRIC OF THE WEEK: Share of Wallet - this is one for all you marketplace people (who should also check this other article on Marketplace Liquidity and mentions in this newsletter from earlier this month). Share of Wallet is a measure of a marketplace going from being one of many options to becoming the main option for a buyer (AND also a supplier).
2. ONBOARDING (Remotely): Fun fact- I've only met three of my team IRL; everyone else is remote, overseas, and in a different time zone. Successful onboarding is hard, so check out this complete guide to remote employee training from Hubstaff (who I also use for my remote team). For some solid examples, this is how Zapier does it (and leverages their own product to use automation to do it), and here are some lessons learned from Slack. 3. PPG: Grab your tech dictionaries everyone! I have another acronym for you: PPG, or People Powered Growth. This is a derivative of product-led growth, which consists of a cross-functional team with customer- and non-customer-facing members. It's a People + Product partnership that develops and tests solutions, searching for ways to scale human interactions/intervention with a product. Some examples of PPG companies are Drift, Dropbox, and Loom. 4. GROWTH: Testing new marketing growth tactics takes a lot of resources, and most of us don't have much time to run experiments. So check this Google Doc from Dashly, where they collected 100 growth marketing hypotheses tested by a bunch of their experts (including advert retargeting, wait list for product launches, niche glossaries, etc.). 5. AI: Another week, another big AI update: OpenAI launched a new model called GPT-4o. It can reason across text, voice, and video. Take a test drive (it's free for everyone). It's impressive, and I can now turn off my accessibility microphone workaround as I can now actually talk directly to ChatGPT as response time is fast. It's not quite Human conversation fast, but close, and keep in mind this is the worst it will ever perform. Check these examples out. 6. CHAOS THEORY (PIVOTS): Digital Transformations are important, strategically for most modern businesses. But the mindset needed for these changes to happen requires a certain kind of improv style to get there - as the systems in place needed to change or pivot are usually very complex - change IS chaos. So take some time to read this article to understand more of what this is about - I also aspire to have the title of "Chaos Manager" one day... 7. RAISING: Securing a Series A funding round in the current market has some seriously heightened expectations. It's a common tech-ism that most startups have not yet reached genuine "product-market fit" by this stage, but the expectation these days is that there needs to be a higher degree of PMF signals. The "graduation rate" from Seed to Series A has declined, showing increased investor skepticism. In fact, the graduation rate from seed to Series A is around ~12%, the lowest it has been in 5+ years. 8. MARKETING 1: Where do Marketers feel most confident about getting an ROI from their campaigns? This article answers that for you, but the TL;DR is that it's LinkedIn (and this is a survey of B2B and B2C marketers). 9. MARKETING 2: Now that market conditions dictate profits are more important than growth, what is the role of B2B growth marketing? And, curiously, is it even marketing in the first place? 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 Lenny's Newsletter (see below for more).PIVOT! PIVOT! POD OF THE WEEK: Continuing with the Pivot vibe this week, Lennys Newsletter has a Part 1 and Part 2 series on "The Art of The Pivot." 1. SaaS METRIC OF THE WEEK: SaaS METRIC OF THE WEEK: Buyer Intent Data. There is never a one-size-fits-all marketing strategy and channel for a business. So how does a business find out what are the best marketing channels for them? This article suggests that everything needed to answer that question is already within the data a business generates every day. (You're going to need Personas, so don't skip the links below.)
2. PERSONAS: SaaS B2B Marketing is a pretty unique beast, and getting into the minds of an idealized customer often requires creating personas. You should try it - it will definitely make you a better SaaS marketer. For most SaaS companies, creating multiple personas is often a strategic necessity. So here is an additional differentiator (and what the difference is compared to a persona) of an Ideal customer profile. 3. AI (part 1): Check out Stanford's AI trends and index report. A few key highlights: 1. AI is better than humans only on a small subset of tasks; 2. Foundational models are getting more expensive to train, 3. Most AI innovation is happening in the US (but the regulators are coming). 4. AI (part 2): Read this in Yodas voice: "Begun the AI Wars has." VCs poured $50B+ into AI last year, with significant investments from big tech and Nvidia's $50 billion in AI chip sales, totaling over $120 billion in AI investment. This boom has led to a few other companies jumping into the ring, including Adobe, Amazon, Meta, and (reported last week) Apple. This surge raises questions about whether AI models are in a bubble, will remain valuable products, or become commoditized, impacting profitability and future AI developments. AI is already fueling Microsoft's surge in cloud revenue, stealing market share from rivals and boosting its enterprise business, and OpenAI may challenge Google. 5. SEO: Sooooooo, do we really still need it? (TL;DR, yes and no)- if you are in the yes camp, check this more modern SEO guide: The Ultimate Guide for AI-powered SaaS SEO, probably written by AI, but it details several benefits of using AI in SEO 6. INDUSTRY (part 1): Last week's newsletter was notable as I had the most ever clicks on one post ever - Is SaaS Dead? Part of the current issue with SaaS is the lack of future liquidity via poor M&A and IPO markets. With IPOs, Tech Companies have a general hesitancy because of perceived "size." Meritech Capital did the analysis, and it turns out there is no "Size Problem." It's all about business quality rather than the size of the revenue base. Read more here 7. INDUSTRY (part 2): ChartMogul's April Benchmark data is out and shows that SaaS is remaining stable - we're in the "it's not getting worse" phase - with growth rates remaining steady. But drilling deeper reveals some potential positivity: Growth is picking up more broadly. PitchBook data takes a bit of a different take: VC investment in the US slowed in Q1'24, especially for large deals and IPOs. AI remains a hot investment area, while M&A activity is stalled. 8. ROADMAPS: We all need them, even in today's Agile workplaces. They are a reference point and sense of direction for what's to come beyond their more myopic Sprint cycles. Read here for the reasoning behind this, along with five roadmap templates to use. I took inspiration from Atlassian and published a public access roadmap - it works well! ChartMogul also has one, and if you want to venture in, first check these seven roadmap-making fails. 9. CYBERSECURITY: Cyber threats are going nowhere fast in 2024. Regardless of the size of your SaaS business, security should be part of your dev cycle but also know your weak spots. Bessemer Ventures has a great article this week covering Cybersecurity trends in 2024. CISOs (or whomever in your org assumes that role) are refocusing on security basics due to evolving threats and regulations, plus AI exploits are on the rise. 10. CASE STUDY: SEARCH: What has broken Google Search? Before ChatGPT and the like threatened Google's somewhat laissez-faire monopoly of search, Google's search revenue had already faltered back in 2019, triggering a "code yellow" crisis. According to this article (with solid sources), Google's ad and finance teams pushed for aggressive growth measures, resulting in the current compromised search quality and user experience to boost revenue. This internal conflict revealed what the real problem may be - a shift in Google's focus from user-centric innovation to revenue-driven tactics. Of course, it may not all be Google's fault (in fact, they already penned a strongly worded letter of complaint to the author - and he's responded, taking none of their antics) - the other problem is that the web has also gone to shit and a lot of it has become "too inauthentic to trust." POD OF THE WEEK: YC Partner Gustaf Alströmer talks about Growth for Startups, including how to measure product market fit, how to decide on a growth channel, metrics that lie about PMF, and other mechanics of growth for startups. 1. SaaS METRIC OF THE WEEK: CRO or Conversation Rate Optimization and Banklinko have created a great web guide about what it is and how to design for CRO within a business.
2. INDUSTRY: Jason Lemkin wrote a thought-provoking article last week: Is SaaS Dead? That's a controversial headline, for sure, but it did get me thinking: Now that high growth is no longer cool (thanks AI!) and returns are lackluster, is it dead? It feels like it, as it's a long down cycle, but Jason does point to plenty of upsides. SaaS spending has grown, and customers are still spending more each year than the last. 3. MICROSERVICES: Microservices have become the application deployment method du jour for quite some time now due to scalability and agility. But those old-school monolith apps also have value. Case in point - the Amazon Prime Video team recently shifted from microservices to a monolith and reduced costs by 90%. The choice is case by case, though. Microservices can get crazy complex, and Monoliths simplify deployment but often lack scalability. So, a blended approach makes sense, where core functions remain monolithic, and other components can go microservices. 4. CUSTOMER SUCCESS MODELS: Like customers, not all CSMs are built the same. And it depends, based on stage and strategy, as to how your CSM teams will evolve…...but they will. Gainsight proposes 5 basic kinds of CSM and a corollary org chart. But keep in mind IRL they all will be different hues. SaaSx has this model. Which one best resonates with you? 5. REFERRALS: Cracking the referral loop is a dream outcome, but making this work is pretty rare. Kyle Poyar has written a guide on how to do it ( a collab with Stefan Bader from Cello, makers of referral software). 6. TRUST: For #5 above to work, people trust people over brands when it comes to trust. Chart Mogul has posted an 'Ultimate' Guide to Using Customer Testimonials to Boost Sales, noting that a generic and insincere endorsement is just as helpful as not using anything. It's also possible to take it further by leveraging those frothiest customers into a referral channel. 7. MARKETPLACES: Marketplaces need more attention in this newsletter, so time to change that a little this week. a16z have the Marketplace 100. A ranking of the largest and fastest-growing consumer-facing marketplace startups and private companies. Instacart tops the list after some serious food delivery consolidation in that market, and the next 3 down are gaming and ticketing services - it will be interesting to see if any of that consolidates next year. One big marketplace problem, as outlined in this week's copy of Mostly Metrics, is that Marketplace-driven businesses are way behind other tech industry metrics across nearly every category - gross margin, revenue growth, CAC Payback, and Rule of 40 being the big ones. I mean, UBER literally just had its first-ever GAAP operating profit (Uber started in March 2009, so it only took a quick 15 years). 8. MARKETPLACE GROWTH: To add to #7 above, Two-sided marketplace businesses (such as Uber and Airbnb) face chicken vs. egg dilemmas when it comes to supply and demand. Here is a curated list from a16z's Andrew Chen on 28 ways to grow the supply side of a marketplace. 9. AI: Apple announced its foray into the LLM world twice last week with reports of continued conversations with OpenAI and the launch of OpenELM - an open-source model designed to run locally (iPhone chips inbound!) Are there too many LLMs on the Dance Floor? TechCrunch does the hard work with a list of all the cool ones. There is also a noted push towards AI-services (apparently a $4.6 trillion opportunity), which is all part of a newer push for AI to transition from "AI co-pilots" to "AI co-workers" that can complete tasks and workflows on their own. 10. CASE STUDY: PITCHES. Check out Alexander Jarvis's Pitch Deck collection. He has over 500 decks broken down by the good and the bad things people do. And here is something a little Meta from Khosla Ventures—a pitch deck on how to pitch VCs and align your narrative to your deck (and all of your other materials). POD OF THE WEEK: Apollo Chief Revenue Officer Leandra Fishman offers a great discussion on how to sell in a hyper-competitive space with dozens of tools, legacy systems, and cynical users. Apollo went PLG but was also hyper-focused on Time to Value for its target audience. 1. CAC - in a modern SaaS world that has maturing companies using both sales-led growth (SLG) and product-led growth (PLG) motions and teams, how do you calculate CAC? The answer is they should be kept separate (see Pod of the Week for more below)
2. GTM: Go-to-market motions can be pretty specific and can impact your marketing strategy and your org chart. Mark Roberge at Stage 2 Capital gives some PLG context on go-to-market strategies in a really great presentation. The slide deck from the presentation can be found here. 3. CONVERTIBLE LOANS: They are a kind of debt until they are not. However, convertible loans are a quick way to access money quickly through an interested investor. Point Nine Capital describes in detail what is involved in a convertible loan and what to look out for. 4. PLG vs. SLG: According to the Expansion SaaS Benchmarks report (it's a downloadable PDF), PLG businesses lead the pack, but as stated above - SLG can outperform PLG, and according to this article, it's not a "vs." thing - you don't have to choose, both strategies can co-exist. 5. KNOWLEDGE BASE: I complain all the time that building a comprehensive and useful customer Knowledge Base platform is hard. But here is something to consider (it's certainly a helpful article for my mindset): There are probably stakeholders/purchasers of your product who do not respond well to traditional marketing and, in fact, may actively hate it. These people are like me, and while I may moan about how difficult creating good documentation is, it may be one of the best anti-marketing-marketing tools you have available, Especially if you have an API as part of your product. 6. DUE DILIGENCE: For investors, what the heck does due diligence look like for pre-seed or pre-rev companies (especially those seeking out Convertible Loans - see #2 above)with no real traction or trends to share? It's hard to do - but this article captures many key areas, especially founder equity, non-founders on the cap table, and founder vesting. 7. SEO (and AI): Last week, a post on how SEO is becoming less reliant (thanks to AI) was the second most clicked article. Apparently, everyone is interested, so here is more on how to prepare. 8. VENTURE: According to Pitchbook, the one-year rolling internal rate of return (IRR) metric for VC funds in the US is at the -10% mark (yup, that's a negative), started in late 2022 and has continued through to now (with a dip to almost -18% at the end of 2022). These Fund returns remain negative due to portfolio markdowns and a lack of liquidity. 9. ANNUAL DISCOUNT: We are all part of the great SaaS Ponzi Scheme, and the average enterprise has 23 vendors in their tech stack, so it probably comes as no surprise to you that annual SaaS contracts are discounted. But how much? 10% is the median, and the range is tighter than I thought, at 6%-14%. Why? Jason Lemkin has the answer for you (TL;DR - behavior - Human behavior) 10. CASE STUDY: This is more of a guide this week and a follow-up from #5, which I assume 95% of you think is boring. Yes, yes, it is—but it's super necessary. So read this guide to knowledge base creation for SaaS. I use it as a case study as it's also Userpilot drinking its own lemonade. POD OF THE WEEK: To marry #1 and #4 above from the SaaS CFO Calculating CAC when you have PLG and SLG motions. 1. SaaS METRIC OF THE WEEK: RETENTION Chartmogul notes that retention strategies are now growth strategies in their SaaS Growth Trends in 2023 report. Why is that? It's because companies with best-in-class retention grew at least 1.8x faster than their peers. Check out this other great ChartMogul article that outlines how to calculate, benchmark, and track retention (along with some good ol' fashioned strategies).
2. 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. 3. BUDGETS and FINANCE—DEEP DIVE: For some of you, the new Financial Year just started, so check out some of this help for your Financial Year plans: Bessemer has a great six-part "fundamentals of startup finance" series: Part 1 (Goldilocks Budgets), Part 2 (Forecasts), Part 3 (Hiring), Part 4 (Growth and Profits), Part 5 (Pricing), and Part 6 (Metrics and benchmarks). 4. TRIGGER TECHNIQUE. Another new entry for the Tech Dictionaries, The Trigger Technique outlined in this article, shows how to leverage customer interviews to learn what "triggers" potential customers' buying decisions. This information helps design more targeted marketing campaigns to boost sales. 5. VENTURE: According to Crunchbase data, Global Venture Funding was up in Q1 this year, but not by much ($66B). In fact, it was the second-lowest period on record (by volume) since the start of 2018. Of that $66B, Seed and Early Stage pulled in about $3B. At later stages, the VC pullback continued (falling 35% YoY) to $29.5B. Carta agrees that it was in the "slightly better" category; here is their summary. 6. REVENUE: Did your team or company miss revenue goals last quarter? If so, you are not alone, as according to data in this article, 56% of companies fell short of their revenue goals. Marketing pipeline and sales velocity are also down, which are pretty key indicators that revenues will be down the next time this data gets refreshed (towards the end of the year). 7. PROFITS: Just how profitable should a SaaS Company be? This article from OnlyCFO looks to benchmark profitability data in SaaS, and here are the main takeaways: Gross Margins are Crucial: Companies with low gross margins (around 50%) face a hard limit on profitability, even with efficient operations (one of the reasons SaaS is favored); As SaaS companies grow decreases in OpEx as a percentage of revenue should occur, as should Sales and Marketing costs (typically the biggest component of OpEx) 8. DISTRIBUTION FIRST ERA: This intriguing article argues that SEO is becoming less reliant (thanks AI), so it advocates for identifying channels with high potential (via research of where the ideal customers are active, etc) using a Channel Growth Quadrant (I love me some quadrants). Great ideas for sometimes overlooked distribution methods. Adding onto this is the concept of "being where you matter" - and cynically, communities are not where that is (it's channel) 9. CLG: One more for the tech dictionaries. CLG stands for Customer Lead Growth, which is just another term for old-school referral engines or word of mouth. It's the most operationally efficient channel an operator could hope for. Download this "definitive guide" from Catalyst. Deloitte is even in on the acronym with their perspective. Userpilot breaks CLG down vs. PLG here. 10. CASE STUDY: Intercom's Des Traynor and Fergal Reid share insights on leveraging AI language models (like GPT-4) to transform Intercom's SaaS products, highlighting the importance of low-risk problem selection and a centralized ML team. POD OF THE WEEK: From ChartMogul, complimenting #9 above, Is Customer Led Growth (CLG) the new Product Led Growth? 1. SaaS METRIC OF THE WEEK: This week, a video should be mandatory for onboarding every person in a SaaS company. It's from David Skok 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, so it's easily watchable.
2. AI: Last year, valuations for early-stage AI startups saw a 20% premium compared to other companies raising early-stage capital. This premium also transfers into later-stage companies, with Series B AI rounds seeing 1.5x higher dollars than their counterparts. 3. GROWTH: Here is the start of an incredible three-part article from Notion covering the challenges faced by (VC-backed) startups as they strive to reach $100 m in revenue. Fun fact: Only 1.2% of us will achieve this milestone (welp). 4. AI: According to this a16z report on enterprise buying/usage of generative AI, budgets for AI are moving from one-off tests to proper OpEx. Companies seem to be using more than one model (my team certainly is), and internal use cases are easier to implement (again - samesies). 5. INDUSTRY TRENDS: The SaaS Industry is maturing out of its growth perception, and this is an excellent summary of a recent AGM presentation from Bowery Capital. SDRs and AEs are putting in way more effort to get less results these days. However, AI offers new growth potential in this mature and crowded market, driving ROI and opening up new opportunities for software companies. 6. SHUTDOWNS: According to this post and data from Carta, the number of startups shutting down is on the rise this year compared to last (and this is incomplete Q1 2024 data), and according to Pitchbook, organizations specializing in assisting startups with winding down operations are experiencing significant growth 7. PMF: There is no one prescribed way to tackle product market fit, and this article from Bessemer Venture Partners covers some of the diverse PMF strategies, from focusing on a narrow market to experimenting with pricing. Atlassian's freemium model and Box's enterprise focus highlight the real significance of market choice and adaptive pricing. Lessons like these (and see #10 for more), combined with frameworks for assessing product-market fit, provide some excellent PMF guidance - along with a cool PMF Quadrant. This article has some great observations about early-stage PMF. 8. DESIGN ENGINEERING: A new entry for our Tech Dictionaries. Design Engineering mashes engineering and creative problem-solving skills - UX + Tech. This newish role is handy for new tech shifts of the LLMs and AI kind - I like it. It offers a cross-discipline approach to product development and system design. 9. TRUST: This is a surprisingly interesting and cool report from Edelman, which is a study on trust in tech and with tech companies. Trust dynamics are hard and vary wildly by country (the UK is 39/100, India is 76/100). There is a loss of trust in leadership in several countries, along with distinct concerns around AI and a growing need for innovation regulation (likely all due to AI). 10. CASE STUDY: To add to #7 above, this article is a case study on Pilot, a startup by 3 serial founders on finding Product Market Fit. It explores their learnings across their startups. Key takeaways include picking a large market, solving a genuine customer problem, and building a strong team. POD OF THE WEEK: Complimenting #7 and #10 above, Dan Olsen (author of the great book The Lean Product Playbook) discusses How to Achieve Product-Market Fit. 1. SaaS METRIC OF THE WEEK: Attribution. Marketing attribution models help marketers assess the data behind user touch points and conversions to understand the return on Investment and effort. Learn more here about Single-touch attribution models, Multi-touch attribution models, attribution tools, and more to make better data-driven marketing decisions.
2. PAYFAC: Crack open your Tech Dictionaries—I have implemented PayFac (or Payments Facilitator) to create an additional (recurring) revenue line for the business, but I was not aware of this pre-existing portmanteau for that. Stripe has a good guide on bringing PayFac in-house, and here is a downloadable PDF on the same topic. It's very low-touch once it's up and running! 3. EMPLOYEES: Here is a great question: How many employees should you have based on your ARR? In 2023, this answer may be much lower in our Leanops market, but my former big boss David Sacks has a great slide from his SaaStr presentation on optimal SaaS Org Charts (Full deck here) - Series A is 40-50 at 1m ARR. Yup, that's only $20-$25k ARR per employee - the full report is here, which expands into what roles you should hire and what the org chart looks like. 4. SALES OPS: For those of us lucky enough to be in Scale-Up mode but not in a PLG way. Scaling creates some real teething problems, especially regarding revenue teams and moving beyond the founder being the primary (or only) salesperson. Eventually, a dedicated team will be needed (that doesn't involve the founder), and in more modern times, sales operations operators are required to coordinate cross-departmental activities to help a revenue organization hum. Read this Sales Ops primer article from Point Nine Capital on starting all this. 5. COMPENSATION: To complement #3 and #4 above (and also add to last week's popular link covering How Cheap a Product Can You Have And Still Have Salespeople?), here is a three-part Guide to Sales Rep Compensation for startups highlighting compensation plans (part 1), SPIFFS (part 2), and Commission Rate benchmarking (part 3). 6. MVT: Here is another one for your tech dictionaries: MVT, or Minimum Viable Testing, is about creating hypotheses and conducting tests that allow you to predict whether a market will appreciate a product before even launching an MVP. 7. PRICING: Pricing AI products is complex due to variable costs. Late last week, I was asked questions about pricing AI. After some research, SaaStr has a solid piece on how to price and package AI SaaS products. 8. STARTING: Who's been asked the "How do I get started" Question before? Y Combinator has a deep-read startup playbook that distills key advice into actionable segments: Idea, Team, Product, Execution, and relevant podcasts. For anyone wanting to get started, it's all about simplicity, understanding the market, and maintaining operational momentum as the critical fundamentals for success. Highly bookmarkable for those at the earliest stages. 9. FEMALE VENTURES: According to the Pitchbooks All In, Female Founders in the VC Ecosystem report, Startups founded and co-founded by women entrepreneurs in the U.S. received about 28% of all total VC dollars last year. This is up from 2022 and shows progress (albeit slowly), but most of that $$ was with OpenAI. Take that out of the equation, and cumulative dollars are actually down. Interestingly, Pitchbook has slightly similar stats on their Female Founder Dashboard (25.5%) and a good chart showing how Female founder-only startups get a MUCH smaller piece of the pie. 10. CASE STUDY: Moving upmarket into larger organizations is a standard SaaS growth strategy and Tech-ism. Increasing ARPU (Average Revenue Per Customer) is good! However, there is a lot to learn and a lot of time, learning, and effort required to succeed in this market segment. It's not easy, but it can be done. Here is an excellent guide from Outreach on breaking into deals over $100k ARR. POD OF THE WEEK: The Video version of #7 above from Unusual Ventures - How to price and package AI SaaS Products. 1. SaaS METRIC OF THE WEEK: In 2024, efficiency is a key measure - see this post from SaaStr and this one from IceHouse Ventures. On the balance sheet, People are the most important (and expensive) metric for any company, especially SaaS. Revenue per FTE is one metric for company efficiency via people efficiency. What should my annual recurring revenue (ARR) be per employee? Here is the chart in one TL;DR visual, but if you want to read the whole article, you can check it out here (and also here as a PDF).
2. M&A: Navigating an acquisition process is a relatively unexplored topic in this newsletter, so check out this guide to running an M&A process as a Founder from First Round Review. 3. NOLS FRAMEWORK: Management talk time: Not all decisions are made equally, and as a former outdoor educator and part of the National Outdoor Leadership School's (NOLS) network, I love articles from another life that apply today. This one focused on group decision-making, outlining 6 different ways to make decisions in a group. 4. MONETIZATION: What are the best ways to monetize based on market segment? It's kinda obvious: 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? 5. RAISING: There is quite a big gap for startups at the Seed and Series A stages, so check this guide for founders to understand the difference between raising their Seed round vs. their Series A. Some seed investors should also read this. 6. VENTURE: Last week, we referenced Corporate Venture, so this week, let's look at Family Offices. The Western World is amid a massive transfer of intergenerational wealth, from the Baby Boomers down to the young-uns. This is also true in the Family Office world, and according to Pitchbook, the VC industry could witness a huge influx of the $100T or so worth of family office assets being transferred over the next 25 years. 7. AI 1/2: Quite a few moves in AI this week and two from Apple: Apple acquired Canadian AI Startup DarwinAI (which specializes in manufacturing efficiency, which makes sense and only Apple's 3rd acquisition in over 2 years)), but surprisingly, rumors are circulating of Apple integrating Google Gemini, into their devices, all part of Tim Cooks promise last month to have AI news "later this year." On the infrastructure side, NVIDIA, fresh off a banner market cap year, unveiled its next-generation AI GPUs and is apparently in advanced talks to acquire AI infrastructure platform Run:ai. 8. AI 2/2: This post speaks volumes to me and my daily use of AI co-pilots/assistants and where I also see it headed (and see the use case for users in my B2B SaaS day job): AI copilots transitioning to "AI co-workers" that can complete tasks and workflows on their own. 9. COMPENSATION: Carta's State of Startup Compensation (H2 2023) came out last week and has all kinds of interesting data - one is broken down into this Twitter post outlining what the first 5 hires at a startup typically receive in terms of equity compensation. BONUS CONTENT: New Zealand Tech industry compensation report from Potentia. 10. CASE STUDY: Last week's Podcast, which discussed lessons learned launching new products at Atlassian, was surprisingly popular, so let's double down again this week with a case study via Tara Seshan (ex PM at Stripe and Watershed), who shares lessons from her playbook for going multi-product. POD OF THE WEEK: From Peter Walker discussing Startup funding in 2024, the year of layoffs or recovery? And why down rounds may not be such a bad thing. 1. SaaS METRIC OF THE WEEK: ACV, or Annual Contract Value, is one of the most popular metrics in the SaaS world. Chartmogul's article details what it is, how to calculate it, and how to leverage it in your business. Here is some good recent data on ACV within scaled SaaS companies. TLDR, the median ACV is $49K. But not all annual revenue is created equal - check out this analysis by CJ Gustafson
2. CASH MANAGEMENT: Here is Part 1 of a 3-part Guide to Cash Management for Startups, which 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. 3. ANNUAL PRICING: I'm sure you see this all the time: options to pay monthly or annually on a SaaS pricing page. This is great for all you non-consumption-based folks out there. It's a really great choice for cash flow, but is it the right option for your business? Jason Lemkin has the low-down. 4. ESTIMATION: If you have a services element in your startup, estimating effort, especially in Software projects, is mega hard, and we're all terrible at it. McKinsey found that IT projects are, on average, 45% over budget and 7% over schedule, and the larger a project gets - the worse these stats become. So you should definitely bookmark this series (or share it with the person you know who needs to bookmark it) - Estimating Software Projects by Jacob Kaplan-Moss (and what to do when you mess up). 5. FORECAST: This is a great article to help you better forecast your subscription growth. It shifts focus from immediate earnings to long-term revenue and uses an excellent walkthrough example to emphasize the importance of understanding retention rates. 6. MULTIPLES: The Clouded Judgement newsletter took a look at SaaS revenue multiples this week, and here is the news: Overall, the Public Median is climbing back up and is now at 6.2x (we were at 5.2x this time last year). Public multiples don't have a direct correlation to private multiples, but they are definitely a signal that the direction of private valuations should be trending up. SaaStr covers pre-IPO Multiples well in this article. 7. CORPORATE VENTURE: (CVC). Back in the good ol' days of '21, Global CVC-backed funding more than doubled ($169.3B). CBInsights has just launched their Global 2023 State of CVC Report (pdf), and it's down, way down. Total deals were down 32% (3,545), and funding dollars were down 46% - roughly in line with declines in the traditional VC market. But - silver linings: CVCs are still very interested in early-stage startups (it's about 2/3 of all capital deployed) 8. AI 1/2: I read a great article earlier this week titled AI won't take your job - someone using AI will...and apparently, companies are also willing to pay a premium for that worker according to this survey by AWS (up to 47% more). 9. AI 2/2: The AI Tech Bro wars are underway. Elon Musk, not happy with how OpenAI is now operating (a for-profit wrapped up in a non-profit entity—similar to Mozilla), has filed a lawsuit against them. But for context, here is the original pitch for OpenAI that Sam Altman sent to Elon. Cynically, OpenAI is concerned that Musk could use the discovery process in the lawsuit to help aid his own artificial intelligence company, xAI. 10. CASE STUDY: Moving upmarket into larger organizations is a standard SaaS growth strategy. Increasing ARPU (Average Revenue Per Customer) is good! But there is a lot to learn, and a bunch of time, learning, and effort are required to be successful in this market segment. It's not easy, but it can be done. Here is a great guide from Outreach on breaking into deals over $100k ARR. POD OF THE WEEK: Megan Cook, the head of product for Atlassian's Jira Software, discusses lessons learned from launching new products and how to get buy-in. 1. SaaS METRIC OF THE WEEK: Consumption-based LTV. If you have a consumption/usage-based model, you probably have revenue that is not consistent month on month. Variable revenue is now a big thing in SaaS. 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 you think about your own pricing models.
2. HYBRID PRICING: Adding onto the metric above, Kyle Poyar of OpenView has noted in this article (and updated from this one a couple of years back) a) usage-based pricing isn't merely a pricing change but an org structure one and b) UBP adoption has cooled (from 46% to 41% '22-'23) shifting towards "hybrid" pricing models that combine usage and subscription pricing, especially in the SMB side of town. 3. SALES PLAN: Adding just one more onto #1 above, when creating Sales plans, here is a great article from a16z on creating a Usage-based Sales Compensation Plan. 4. TAM: A critical question at the very early stages of startup land is, "What's the market size?" - if you don't get it right, it can create trust issues as the size potential of this startup is directly proportional to the size of that market. Having a clear understanding of Total Available Market (TAM), Serviceable Obtainable Market (SOM), and Target Market (TOM) can give all the confidence in the world to answer that question. But y'all really need to get started first with this TAM Masterclass. 5. FIRST PRINCIPLE THINKING: This phrase has been thrown around a lot in recent years, so do you want to be more like old-school Elon (the one without all the SEC/Twitter/kids dramas)? Take a read here on the concept of First Principles Thinking. In addition, here is a full guide/website. 6. RAISING: How long does it take startups to reach each venture stage? Carta's Head of Insights, Peter Walker, shared his analysis, which also clearly highlights the impact of the difficult fundraising environment we are currently in (Last year was the lowest for venture funding globally since 2018, - $285 billion according to Crunchbase data) 7. SALARY (Updated for 2024): Hey Founders, a TechCrunch article from last year recommended that founders pay themselves rather than doing it for the equity. But how much? Unfortunately, this doesn't mean you get Market Rates. Fortunately, there is a new report in town that dives deep into this question; the "Founder Compensation 2.0" report (Europe-based) aims at providing data-driven insights for setting founder pay, especially those of us from Seed to Series B, offering a clearer picture of what is considered "normal." It also comes with a Compensation Calculator! 8. ESOP (also updated for 2024): 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. How much equity should you be setting aside for employees in 2024? Peter Walker again - coming through with the good data via this LinkedIn post (check the comments for good Q&A). ESOP starts with around 13% fully diluted at Pre-Seed and Seed and grows to about 20% fully diluted at unicorn valuation. 9. GROWTH HACKS: This article suggests we avoid using "growth hacking" in pitch decks; investors prefer structured GTM strategies. Focus on market understanding, a clear plan to gain market share, and mastery of chosen channels. But IRL, outside of telling VCs you don't, here are five real growth hacking strategies you can use right now. 10. CASE STUDY: Adding onto #9 above, here is how First Principle Thinking can be applied IRL - in this example, towards a Product Lead Growth business. POD OF THE WEEK: Adding onto #6 above, Chartmogul has a great panel discussion about what matters most when pitching in 2024 and what advice they have for SaaS companies looking to raise this season. 1. SaaS METRIC OF THE WEEK: 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. PRODUCT POSITIONING: It's easy for startups to underestimate the significance of product positioning and marketing in the early stages. This article highlighted the importance of understanding the product, customers, and competitors and had me at the subheader: "A lot of startups suffer after initial growth because they can't figure out what they are building & for whom." 3. PRICING: This is a constant experiment, and we expect it to evolve forever (FYI, we are not charging enough). Intercom makes the case that a solid pricing strategy should help shape an entire business model, and here is an excellent article on how to choose the right SaaS pricing model. 4. INVESTOR UPDATES: The NFX team has read many investor updates and published a guide where they share common mistakes and how you can avoid them (and also deliver hard news). 5. DECIDE: Because human beings are weird, we often make decisions using predictable (and fairly subconscious) mental shortcuts - in the UX world, the term used is 'Heuristics.' Check this (ultimate) guide to heuristics evaluation, complete with cast studies! Sidebar bonus - Look at this guide if you need help with decision-making frameworks. 6. SALES 1/2: Looking to establish your first SaaS Sales Comp plan? So first, check this report on the State of Startup Compensation from the team at Carta. They look into questions such as what makes up for the largest share of compensation spend, what roles get paid the most, and whether startups are still hiring remote workers (yes, remote hires now represent 62% of all new contracts). Then, read this post from Jason Lemkin on how to construct a framework for the first SaaS sales compensation plans. If you need more Lemkin - see the Pod of the Week. 7. SALES 2/2: Loading more to #6 above (and #5 on deciding). To scale your Go To Market effectively, you must tailor a sales team to match your audiences, product complexity, pricing model, and GTM strategy, ensuring they possess the necessary skills for success. Alignment is key for optimal execution. It also comes with a template from which you can get inspiration. 8. SEGMENTATION: A SaaS business doesn't cater exclusively to just one type of customer. So, to focus on size-relevant engagement strategies and cater to the needs and problems of these different customer types, Segmentation is key. Here is an interesting case study/article on how Segmentation can be combined with LTV (Life Time Value) to grow MRR (from a subscription box startup). From Point Nine Capital is a great article on Customer Segmentation, and here comes the real modern-times question: Can you use AI to automate the segmentation analysis? TL;DR - Yes. 9. MARKETING: I've already shared this with a bunch of founder-friends; it's a great article listing ten low-effort, high-impact marketing tactics for quick wins. 10. CASE STUDY: Adding an excellent case study to #1 above from Lenny's Newsletter, Duolingo reignited its user growth via gamification, push notifications, and optimizing streak features. This led to a 350% increase in active users. These strategic changes were data-driven, using some pretty innovative growth models (which got them a successful IPO). POD OF THE WEEK: A new go-to podcast from Lenny's newsletter, something most of us have the least experience with - building sales teams. Great insight from Jason Lemkin on how long to wait, what the first hires should look like, and how to comp them. 1. SaaS METRIC OF THE WEEK: BURN MULTIPLES. In this new capital-efficient SaaS environment, operators must balance 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 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 and 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. 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. Individual plans, team plans, and expansions/renewals are all considered for a high-growth sales team structure. 4. MARKETING: I feel personally attacked by the title of this article, "You Suck at Marketing." As an operator wearing many hats, including marketing, I begrudgingly have to agree. Most of what works for us is inbound and the result of Content Marketing - so read this article from the team at Organic SaaS Growth on how to be less sucky at that. 5. EXPERIMENTS: In a very enjoyable mentoring session last week, we took a deep dive into experimentation - because every day, every path you take towards growth and revenue should be a hypothesis in startup land - time to upskill your experiment skills by reading how to run a growth experiment (in 4 easy steps!). Testing versions of things is something to embed across your company and culture as you experiment toward growth - it's why failure is critical to not failing. When conducting experiments such as A/B tests, start with this refresher and then this Step-by-Step Guide. Go Practice has some great advice on how to make these experiments run faster, too. 6. FOLLOW UPS: I probably push this too hard on Sales "follow-ups" and "nudges," so I need to subject myself to this article from time to time: How often to follow up: Follow-up Frequency to Close Deals Instead of Annoying People. It was great to see "Way more than you think." though 🙂 . There is also this concept of the "Rule of 7," which states that a potential customer needs to see or hear your message seven times before they buy something. 7. AI: Last week, we saw another game changer, OpenAI, which now does text-to-video with the release of the short-form video generator Sora, and the AI formerly known as Google Bard was rebranded as Gemini. Not to be out-thunk by AI, the team at a16z has launched a thought leadership "agenda" by calling this new phase of tech change driven by generative AI the "Era of Abundance" - built onto of an AI-enabled Pitch Deck generator, of course, (gamma.app) and also came with an interesting Market Map. 8. VALUATIONS: Throwback to a 13-year-old (dotcom 2.0 bust) article that may as well have been written this year on valuation multiples and how not all revenue is treated (forward multiple) equally from Bill Gurley (of Uber fame). Adding flavor to this is a take from Santosh Sharan on the recent acquisition of Drift by SalesLoft, which he views as more of a merger so Vista Equity (the parent company of both) can keep forward multiples high, especially given the original sticker price they paid prior to the downturn. 9. CONTRACTS: This is the report none of us knew we needed - but my word, 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 (5x increase from Q1 to Q4 last year), and the big one, time to sign - 3-5 days-ish (SMB to Enterprise). Have a read - I bet you will be pleasantly surprised. 10. CASE STUDY: Complimenting #5 above on experimenting. On the extreme end of A/B testing is booking.com, which often runs over 1,000 tests simultaneously! But here is the payoff: That flywheel enabled Booking.com to compound at healthy growth rates while maintaining ~30% EBITDA margins and scaling Google ad spend to approximately $4 billion per year! POD OF THE WEEK: Alex Lieberman and Ian Ito have done the hard work and consolidated the best podcast interviews according to a survey of over 300 people. It's an extensive list. 1. SaaS METRIC OF THE WEEK: Gross Dollar Retention: Net Dollar Retention is an important metric for our new capital-efficient LeanOps world we live in, but let's also consider NDRs twin - Gross Dollar Retention (GDR). GDR measures the revenue that you keep just from your existing customer base. The big difference is that it doesn't include new or expansion customer dollars. Read more via the SaaS CFO here.
2. MARKETING: Bookmark this article from the MKT1 Newsletter that dives into how to organize a B2B growth marketing team as we move away from just a demand gen/Growth hacking worldview. 3. DEMO ANALYSIS: For my daytime business, demos play a pivotal role in our sales process to experientially show and discuss the value we can deliver to a prospective customer. The team at Content Beta analyzed a bunch of Product demo videos (100+) and reported back on places where these videos went wrong, so yours don't have to. 4. INVESTORS: A great article from Cruchbase reviews the startup landscape with seven super informative charts. After a tough 2023 (the lowest startup funding in five years) and an ongoing valuation correction, 2024 looks to bring some stability. Seed funding remains robust, but there will remain a cautious approach to hiring (efficiency per employee as a new key metric). It also shows the shift away from Web3/metaverse (remember that?) toward AI Investments. M&A activities have slowed but may pick up as/if valuations improve. 5. SEED: Speaking of seed (see above), early-stage fundraising in tough markets requires focusing on key metrics. Capture investor attention by showing the capabilities of the business and market: Burn rate & runway (efficiency and planning), TAM (market opportunity, and CAC (sustainable customer acquisition and growth). 6. TECH TRENDS: This is the final tech trends report of the year, I promise - but this is always a good one from CB Insights. There is a lot to summarize in the 100+ slide report covering 20 trends, so I'll lob in some teasers: Generative AI dominated the investment scene, attracting almost 50% of all AI funding (which was $42.5B across 2,500 deals, which US companies also dominated), Google was the most active investor in Q4'23, there is also a pretty sweet nod towards quantum computing, and it's continued path to commoditization/commercialization. 7. ASYNC CULTURE: Crack open your tech dictionaries again for this one - it's something we do at my day job that we are trying to get better at; I just wasn't aware there was a label for it. Management and leadership can get very out of sync with 100% remote and distributed teams across different time zones. So, this is a great Async playbook for those who need to practice this. It's going on my wall, so I can work on a couple of those pillars (especially the stuff around documentation). 8. BUYERS vs USERS: The person writing you a check is different from the person getting value out of your product. So, read this insightful article from HeavyBit on differentiating messaging based on this premise and the different profiles. 9. REVERSE TRIALS: My article on trials was popular last week, so 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, and 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. 10. CASE STUDY: CATEGORY CREATION: I know we all want to be up and to the left in one of those fancy-ass Gartner/Forrester Quadrant reports. So take a watch of this presentation on category creation from Neo4 and another version from Gett. POD OF THE WEEK: Lots are covered by the 20-minute VC this week, who talks to Adam Fisher of Bessemer Ventures about his 27 Years in Venture Capital. 1. SaaS METRIC OF THE WEEK: BOOKINGS. I have a love-hate with bookings, but in the SaaS world, accurate bookings data is critical for tracking sales performance, forecasting revenue, and calculating efficiency metrics. But getting accurate bookings data to support strategic decisions is a struggle - so the SaaS CFO has a great article and template for us all to use to better manage the struggle.
2. BOTTOMS UP: Stage 2 Capital has a Go To Market Analysis Model called the Bottoms Up Model (Bonus Worksheet here), starting with your current state to assess if Sales & Marketing efforts are well matched to the finance plan and unit economics of the products. 3. DIFFICULTY RATIO: Once for your tech dictionaries. Having all your security and compliance ducks in a row is MEGA hard, so the payoff (in terms of customer ACV) has to be worth it. Payoff > Difficulty. This is called the Difficulty Ratio, which is discussed more in a Substack post from David Sacks. 4. SALES COMMISSION: I had some dialogue about a post a couple of weeks back on commission that excited me to uncover this post on creating a sales commission plan, including determining OTE, Quotas, Accelerators, Ramp Time, and Draws. 5. TRIALS: They are a proven funnel method for a solid go-to-market strategy, and according to this article, starting users with premium trials (aka reverse trials) can boost conversion. Also, check this article on 9 ways to optimize your SaaS trial, and then take note of an older article from Tomasz Tunguz asking how long should trial periods be? TL;DR: Longer trials do not convert customers at greater rates. Two weeks or two months, same results. 6. CUSTOMER SUCCESS: Great SaaS-ism dropping from Jason Lemkin this week: Hire one customer success manager for every $2m in ARR. But it's a relative rule and varies with deal sizes, and you can forget the $2m/CSM rule at the earlier stages of growth. But start segmenting & investing early: Big deals ($50k+ ARR): Hire a CSM per 2 customers; mid deals ($5k+): Proactive outreach is possible with 400 customers. Just automate! 7. SEO: This article offers several SEO growth hacks for startups, including building niche tools for backlinks, using "ref" tags on outgoing links, leveraging HARO for expert quotes in media, making small donations to crowdfunding campaigns for backlinks, writing testimonials for services used to gain backlinks, and optimizing pages using Google Search Console data. Double down on this last one - here is how to think about your Google/SEO keywords, and here is a starter guide from them. 8. TRENDS 2024: Sapphire Ventures have released their State of the SaaS Capital Markets report, start 9. VENTURE: This is a great Cheat Sheet from Antler - a guide for very early-stage founders on how much they can realistically raise in their first round. Especially if nothing has yet been built. 10. CASE STUDY: Adding onto #7 above - how Airtable leverages SEO to attract about 3 Million organic searches/year. This is also Grammarly's wheelhouse, so here is a great case study on their SEO. POD OF THE WEEK: The Pavillion CEO summit late last month had some great sessions, with one highlighting some key trends for 2024 (the sound pops out for a little bit - don't worry, it comes back). Some teasers for you: 1. the emergence of the $300,000 employee, 2. efficiency being crucial at different ARR levels, and 3. the importance of cautious hiring in the 'Lost Generation.' Tons more gold inside. 1. SaaS METRIC OF THE WEEK: From the brilliant minds at Bessemer Venture Partners comes a new metric for 2024 called "The Rule of X," challenging the traditional "Rule of 40" and emphasizing growth over profitability. It asserts growth impacts valuation more significantly than free cash flow (FCF) margins, advocating a 2-3x higher weighting for growth. This rule considers long-term market trends, recognizing that while profitability matters, sustainable growth drives greater long-term value. This approach is particularly relevant for the new world of late-stage private and public companies focusing on efficient growth strategies (see #7 on layoffs below).
2. ZERO-OPS: A new entry for your tech dictionary, ZeroOps is a set of practices that result in developers focusing solely on coding and creating, with 0% of their time spent on operations or infrastructure. 3. DEMO 1: The path to Demo is exactly the primary call to action my website is designed for. I assume it's the same for many of you non-PG B2B people, so....."Should Your Website Drive Prospects to a Demo?" Take a read of the article to determine if this is a problem at your startup. 4. DEMO 2: Following up from above, here are some great tips for running a demo without being a salesperson, applicable to both sales and investment pitches. 5. AI: Big Tech is playing hard in this space with a few notable articles this week. First up - the new Big Tech Acronym - MANG (Microsoft, Amazon, Nvidia, Google), the newest group of prolific venture capitalists in data and AI. In 2023, their combined deals totaled $25B+ (8% of all North American venture capital). Secondly, Meta is desperate to be on that list and is playing catch-up after missing the Metaverse mark, so it is now pouring money into developing open-source AGI. What could possibly go wrong? Finally, Sam Altman of OpenAI wants to go more vertical by raising billions of dollars to set up a new AI chip-making venture to compete against NVIDIA and the like (who apparently sold. 6. SECTOR GROWTH. According to Tomasz Tunguz, the fastest growing software sectors will be Security and Data this year (security at 29% expected growth, outpacing Data at 23%). High growth rates in these sectors drive much better forward-revenue multiples. Both sectors average about 10x, significantly higher than others. He expects to extend this growth into private markets, influencing acquisitions and financings. 7. LAYOFFS: Tech industry layoffs are not slowing down into 2024 as right-sizing, R&D-based layoffs, and positioning into profitability (or Shareholder Value) measures continue. As of the writing of this newsletter, we have 94 tech companies reporting a total of 25k layoffs year to date. 8. M&A: Software M&A is also off to a quick start this year, and Janelle Teng tries to make some observations/predictions for the year in this post. Starting with valuation multiples compressing and a corresponding activity slow down due to valuation mismatches. Regulatory scrutiny will rise (impacting deal dynamics and timelines). Soft landings are becoming more common due to challenging operational conditions, and AI-driven acquisitions(see #5 above) are gaining traction. 9. SaaS TRENDS: Vendr runs a Quarterly SaaS Trends Report, and now that 2023 is over, they have just released their wrap-up report for the year. According to the report, some of the key findings are: Software buyers are consolidating their tech stacks and reducing spend, sellers are focusing on price transparency and lower discounts (for example, ACV dropped about 45% between Q1 and Q2), most popular categories for SaaS were sales and revenue and cybersecurity (see #6 above). 10. CASE STUDY: Atlassian has grown from a bootstrapped startup in 2002 to a $50 billion public company. This article outlines the pillars of their growth strategy: product-led, customer-centric, partner-enabled, and culture-driven and highlights some of the unconventional and contrarian decisions they made along the way, such as having no sales team, using rock-paper-scissors to resolve disputes and acquiring their competitors. POD OF THE WEEK: From the Go To Market Podcast - Building a top-down sales strategy while maintaining a bottoms-up approach to build longer-lasting relationships with customers and stakeholders. 1. SaaS METRIC OF THE WEEK: Developer productivity - There are two primary frameworks for measuring developer productivity: DORA (with a free poster!) or the GitLab source. Five metrics for a four-letter acronym to measure DevOps performance and SPACE - a more holistic framework for productivity. And also as a little bonus, how to measure DevEx (Developer Experience)
2. MARKETING: The main goal of any marketing campaign is value-based. I'm trying to convert people who consume some of our marketing efforts into happy customers. Knowing what works can be hard to impossible: measuring ROI, attributing revenue, measuring brand awareness, overall campaign success, etc. So, if you can relate, bookmark this marketing attribution dashboard. It covers all the attribution model types and metrics, best practices, tools de jour, and more. 3. COMMISSIONS: How to pay your different sales channels? Commission levels of sales are pretty stable across sale types at about 10-14%. Commissions on renewals is only 3% and upsell is 9% - however about 50% of the time this is not paid at all. (Bringing up another subject on how much revenue a Customer Service Manager can manage). 4. PRODUCT MARKET FIT: A long-running Growthism 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, stating that there's no specific revenue indicator that defines PMF details other 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 a fantastic article on the subject that is now almost ten years old and still incredibly relevant for figuring out what stage(s) you may be at and we have a Product Market Fit Report to help founders benchmark their progress against others on the same path: Only 56% believe they have product-market fit and 29% believe they will do this within the first 12 months of founding. 5. GO TO MARKET: Go-to-market motions can be quite specific, and your GTM motions can impact your marketing strategy and your org chart. Robert Kaminski has distilled GTM motions into five types in this article based on the number of use cases; the summary diagram at the bottom is excellent. 6. MARKET CONDITIONS: According to Gartner, Worldwide IT spending is forecasted to pass $5 trillion in 2024, up 6.8% from last year, but re-forecast down from the previous quarter's forecast of 8% growth. Interestingly, the Services side will become the largest segment for the first time - transformation projects are in full gear. But we care about software spend! Which is carrying the team at 12.7% growth and is flat from 2023. 7. 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. 8. 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. Which anecdotally is a more common practice in these new market conditions (and includes Klaviyo and Zapier). Jason Lemkin notes this new one-and-done third way. 9. R&D: Research and development are significant components of any competent software startup, and often, public R&D incentives (via grants, tax breaks, or deductions) align well during difficult early and growth phases. But in the US (the world's largest software buyer and seller market), there was a Tax change way back in 2017's Tax Cuts and Jobs Act that is impacting many startups and Tech Companies tax bills, thanks to a provision that changes how R&D costs are deducted - a percentage of layoffs we have recently seen and perhaps about to be seen (along with the rapid cooling in the tech hiring market) may be attributable to this. AXIO dives deep into the problem in this article as I do in the Top 10 Expanded. 10. CASE STUDY: MISTAKES: I saw this original presentation from Anand Sanwal of CB Insights way back at SaaStr back in 2017 - but it's memorable because of its Silicon Valley (the TV Show) like accuracy of things not to do: 100 things NOT to do when building a SaaS company. POD OF THE WEEK: PLG Bonus from the GTM post at #5 above Mark Roberge at Stage 2 Capital gives some PLG context on Go-To-Market Strategies. The slide deck from the presentation can be found here. 1. SaaS METRIC OF THE WEEK: (Lead Velocity Rate): LVR is the lead growth rate of qualified leads per month. This metric clearly explains a business's future revenue and growth. Setting a goal to increase LVR by 25%, for example, will also enable you to equally increase revenue generated for your business.
2. FOUNDER-LED SALES: 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. 3. PROFESSIONAL SERVICES: It's a weird open secret that many B2B SaaS businesses generate significant 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% with enterprise-focused businesses, but even at the lower end of town, it's still 5% of revenue with SMB-focused businesses. Fun fact: more professional services = less churn. 4. VENTURE: 2023 was tough not only for startups but also for VCs. We've lost OpenView (some of the best reports and benchmarks out there) as well as Countdown Capital. The recent Global Private Market Fundraising Report from PitchBook shows that capital last year is tracking to finish from flat to approximately 5% higher, but Megafunds ($5 billion and up) account for about half of all capital raised. Pressure is on first-time fund managers as LPs favor larger, established funds. Andreessen Horowitz (one of the megafunds) was the most active VC last year - 79 VC deals. 5. BENCHMARKS: Last week's newsletter was just a week too early, as ChartMogul launched "ChartMogul Benchmarks" on their platform on Friday. It's designed to give operators on-demand access and an up-to-date snapshot of what good growth looks like for SaaS companies. It requires an account - but it's free! 6. GROWTH: 2023 was the LeanOps revolution as outlined in #1, #2, #3, #4, #6, #8, #9, and #10 in last week's newsletter - we're all part of the newer capital-efficient world all startups live in (not just the bootstrapped ones). So check out the new 2024 State of Customer Growth Survey Report from Catalyst, which shows that while new business growth and retention are essential, customer expansion is the key to very capital-efficient revenue growth (startups of $1M+ ARR, have a third of new revenue from expansion). It also outlines the risks of overselling, poor implementation, and lack of account relationships, which can hold back that growth. 7. DEVS and AI: According to the StackOverflow 2023 Developer Survey, Stackoverflow's main contribution to developers looks to be under threat: About half of developers are using Github's Copilot, and over 80% are using ChatGPT. Other good nuggets: 1/3 still identify as Full Stack, and Developers primarily learn online (over 80%). JavaScript remains the most commonly used language, and AWS is the most widely used cloud platform (by about double). 8. CYBER: Cyberthreats are going nowhere fast in 2024; as threat surfaces increase in size and complexity, they will probably get worse. So bookmark this new Incident Response Team Guide from Microsoft to add to your intranet, share with your incident team, or roll up into your Incident response strategy. 9. MOBILE: The newest State of Mobile report is out from data.ai, which reviews last year's mobile market and looks at Trends for 2024. Here are some highlights: We're up to an average of 5 hours per day on our phones - up 6% from last year; most of that time is on social (where TikTok rules and X is on the decline), even if people are not posting as many updates - everyone is all up in everyone else's DMs instead. In-app spending is on the rise, - $60 billion in 2023 (excluding games) 10. CASE STUDY: Expanding on number 2 above, here is a list of 10 Founder-Led Sales lessons learned with a recent roundtable from Race Capital. POD OF THE WEEK: Sam Schillace, deputy CTO and corporate VP at Microsoft, was also the architect behind Google Docs/workspace and, in this podcast, discusses how to be innovative, the evolution of Google Docs, embracing failure, and the importance of convenience in Product Design. Happy New Year, and welcome to the Benchmark Holiday special! This is a compilation of helpful benchmark data reported from across the web last year for you to put to good use.
1. ARR per FTE: Pulling this from Openview's 2023 SaaS Benchmarks Report, it's the newly 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. This metric ranges significantly based on stage/revenue ($42k to 250k median based on ARR). 2. EXPANSION: Acquiring customers is not enough for a SaaS company's sustained long-term success, and expansion strategies are pragmatic and capital-efficient growth practices that any good SaaS company needs but are getting harder to come by. Top quartile companies have been hit hard, seeing NRR drop from 119% to 107%. But at scale, more growth is from Expansion vs New. The proportion of ARR gained from Expansion has increased from 28.8% in 2020 to 32.3%. In comparison, the proportion of ARR gained from the new business has fallen from 62.0% to 57.9%. 3. CHURN: 40% of SaaS businesses with ARR in the $15-30m range have negative Churn, and, on average, startups with ARPA over $1k have negative Churn. The higher the ARPA, the lower the monthly net MRR churn rate. This is because of lower gross Churn and higher expansion revenue at higher ARPAs. 4. RETENTION: To complement #2 and #3 above, retention is deeply related to Churn (obviously) but also to Expansion. Chartmogul, in their SaaS Growth Trends in 2023 report, notes that retention strategies are now being viewed as growth strategies. And last year, Companies with best-in-class retention grew at least 1.8x faster than their peers. Check out this other great ChartMogul article that outlines how to calculate, benchmark, and track retention. 5. PRODUT LED GROWTH: As mentioned in #3 above (and from me from time to time in this newsletter), Product Led Growth (PLG) businesses lead the pack when it comes to Expansion. PLG companies also deserve their own benchmark reports - so I got you covered with this one where you can benchmark 1000+ PLG companies (it was only 450 companies a year ago). A few factoids: Organic leads are still leading the pack but have decreased Year on Year from 2022 (39% of all traffic) to 2023 (32% of all traffic) - most of that shift has been absorbed by old fashioned Sales, Paid Marketing, and Partners. When it comes to trials, Expansion is harder to come by, and NDR is falling 6. 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 highlights a deepening dependency on access to capital to fund a SaaS company's growth through these SaaS Cash Flow Troughs. 7. GROWTH: Good news - growth is not deteriorating. The bad news is that it's not improving, especially at the early stages. There are signs of future positivity as best-in-class startup growth is accelerating and new business activity is picking up. 8. MARKETING AND SALES: Last year KeyBanc noted marketing spend dropped 31%. This year, SaaS Capital benchmarks the median percent of annual recurring revenue spent on marketing, which remains unchanged at 10%. The median percent of annual recurring revenue spent on selling costs is 15%, down 6% from last year. 9. PRICING: Last year, the median impact on NDR from changing pricing was a +14% increase among expansion-stage software companies. Message heard! As this year's survey showed, 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. SPEND: Capital Efficiency is back in Vogue! 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 - a great metric to track. POD OF THE WEEK: From SaaS Talk, OpenView Partners 2023 SaaS Benchmark Report Analysis. 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). |
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