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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: 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. 1. SaaS METRIC OF THE WEEK: Renewal rate: You have to scroll down to the bottom of this article before you get to the informative bit on measuring this metric (I could also link you to this one). But please read the first part, too - it's great. TL;DR: Don't be a jerk when it comes to renewals. If you have to be, maybe it's you, not your customers (and then keep scrolling again to see the five main reasons why people unsubscribe). This additional article from Profitwell on Renewal Rates also describes the differences between retention and renewals.
2. COMMAND: This is always a much-needed read. Being 'in command' of your business doesn't mean you're in control, and that's OK—it involves proactive, agile leadership that drives change, acknowledges challenges, and seeks solutions, ensuring autonomy and accountability for success. 3. VALUATIONS: Wait - what now??? According to some Pitchbook data fresh from the press last week, early and late-stage VC deals (so not Seed or pre-seed) valuations in the U.S. reached all-time highs in H1 2024. Sounds promising? Pinch of salt time though: it's date from much lower deal volumes of primarily strong companies. Right at the start of the article though, IVP's general partner, Tom Loverro, asserts that us startups that survived this period should shift from cash preservation to growth mode (did we not learn anything??). 4. INDUSTRY: What is Old is New Again. This is a great article reviewing Gergely Orosz's recent talk, in which he discusses the profound recent tech industry shifts and their impact on business strategies, software engineering, and layoffs. It all comes down to interest rates, IPOs, and VC funding changes that have reshaped the tech industry. 5. AI: This is a super interesting thread I wish wasn't just a Twitter post. I also agree with it and actually had a partially drafted essay on it, which motivated me to finish it. I was an original rack and stack infrastructure engineer, which all changed after virtualization and the public cloud. Engineers will not be replaced by AI, but so much day-to-day work is boilerplate that their roles, like mine, will be abstracted up toward design and outline. Why type when you can write? 6. SDRs 1 of 2: SDRs and AEs are putting in way more effort to get less results these days than in the past. It's hard out there. So, if you need to build out SDR teams in your business (see here if you should—you need to have a minimum $3- $4k ACV product), Bessemer Venture Partners has a great article on how to do this well. 7. SDRs 2 of 2: Benchmark time to compliment #6 above. Look at the 2023 SDR Bridge Group SDR Survey for great benchmark metrics, such as how long does it take for an SDR to ramp? (According to past studies, time to ramp for an SDR averages about 3.2 months.)? And how many calls does it take to book one meeting? What about SDRs: AE ratio? This article goes all out and pitches a Mendoza Line for sales reps based on value to the company (not just quotas). BONUS: SDR compensation calculator (Excel). 8. FUNDS: According to end-of-H1 data from Pitchbook, the global VC market continues on a downward spiral in fundraising, with what looks to be the lowest amount of capital raised since 2015. Pitchbook uses the word "Grim" to describe the market, which, of course, has big implications downstream for startups' access to capital. 9. GROWTH: ChartMogul reports further sluggish SaaS growth in H1 2024, with median growth rates at 23%-ish, compared to 30% in H1 2023, 46% for 2022, and 63% in 2021 (on the positive side, it seems to have flattened). Customer acquisition costs are rising (see #6 above), and churn rates have slightly improved. Economic uncertainty and market saturation are the two big factors still impacting growth. 10. CASE STUDY: Most of us should be so lucky to get to this stage, but how do you raise funds beyond Series B (roughly 15% that raise Seed make it to Series B)? Scale Ventures' Stacey Bishop gives the lowdown. POD OF THE WEEK: The YouTube presentation of #4 above. A review of the past 18 months has seen major changes reshape the entire tech industry almost overnight. 1. SaaS METRIC OF THE WEEK: People are the most important (and expensive) metric for any company, especially SaaS (yes, I would argue more important than the actual product). Revenue per FTE is one metric to measure when it comes to company efficiency via people efficiency, but a better one, perhaps, is the ROSE Metric (Return on SaaS Employees). This metric highlights the tradeoffs between headcount, recurring revenue, and EBITDA growth of a SaaS company.
2. HOMEPAGES: The never-ending quest to create the perfect homepage. While there's no such thing as a "perfect homepage," there are certainly best practices you can follow. This article breaks it all down and claims to be the ultimate guide. 3. GROWTH: This fantastic read by the team at Reforge argues that choosing between monetization and growth is a false dichotomy, suggesting businesses can successfully balance both for sustained, scalable success and also outline Growth as a system with three elements: acquisition, monetization, and retention. 4. CHARTS: This is a fun one. "Friends Don't Let Friends Make Bad Graphs" is a GitHub article outlining some good and bad practices in data visualization. It includes examples and explanations. 5. AI ADOPTION: Even though apparently 60% of us released GenAI features last year (see #3 in last week's newsletter), Tomasz Tunguz notes that AI adoption remains slow in some areas. (Opportunity time?) Security, legal complexities, and meeting procurement standards seem to be the top reasons! 6. GTM DATA: I needed this over the past two weeks. GTM partners have a really pragmatic article covering essential metrics and KPIs for your go-to-market strategy (at different stages), covering inbound, outbound, PLG, partner, community, and event-led growth. After all, you can't manage what you can't measure. It has scorecard templates, too! 7. VERTICAL SAAS: Many Big Tech companies are under threat from narrowly focused SaaS companies taking market share in niche areas and building massive businesses. Check the difference between vertical and horizontal SaaS here, and then take a 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. 8. GROWTH: Dealroom explores the traits of top-tier SaaS startups, focusing on growth rates, unit economics (my new fav is Revenue per employee broken down by company size - see #1), and retention. Key factors include innovative products, efficient sales models, and scalability. 9. DILUTION: This is a fantastic Chart from Carta: How much equity dilution is normal? At the Seed and Series A stage, businesses usually see around 20% equity dilution. At later stages (Series C-D), dilution drops to ~10% per round. 10. CASE STUDY: Adding onto #7 above, some learnings on Vertical SaaS from Toast & Procore. Includes the importance of industry-specific solutions, seamless integration, and focusing on customer needs POD OF THE WEEK: 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: We all know the core SaaS Metrics - CAC, LTV:CAC, ACV etc, etc. But Kyle Poyar from OpenView Partners is making the case for the next era of core metrics. With product lead, expansion, and margin profiles (such as ARR per FTE) being at the core of this new potential playbook.
2. SEED: Too raise or not to raise that is the question most often asked at the Seed stage. Peter Walker of Carta posits that founders should not raise a small seed round. He reviewed 4,000+ software startups and concluded (with a bunch of caveats) that small seed rounds have a lower probability of getting to a Series A in under two years. 3. CAPITAL: Last week, liquidity posts were popular - so here is some more data. Emergence has released a report titled "Beyond Benchmarks 2024," packed with data from B2B startups (60% of which released GenAI features last year). At the early stage ($1m-$5m ARR), top startups are growing 100%, and the median is 53%. For companies $5m-$20m ARR, top quartile are growing 58% but the median is only growing at 29%. It gets really out of whack with companies at the $20m-$50m range. The top quartile is at 38%, but the bottom bunch is at -7% (yup, that's negative growth). 4. MULTIPLES: Dealroom has a great guide on multiples with in-depth reviews of valuation multiples for public companies, VC rounds, and exits. These multiples vary by stage, sector, and geography, with a big focus on growth and profitability. The guide also explains methodologies for calculating and interpreting these multiples, providing a comprehensive resource for understanding company valuations. 5. CHURN (AI): Bessemer Venture Partners has a good guide for B2B and B2C AI apps with seven strategies to reduce churn, from enhancing user onboarding to leveraging AI-driven insights for customer retention (B2C AI apps are showing weaker long-term retention rates compared to standard app churn rates). 6. LANDING PAGES: Want to get better at creating effective landing pages? Scrapbook's SaaS landing page optimization checklist provides a guide to creating compelling headlines, using high-quality visuals, optimizing for mobile, indexing, and, of-course, using include strong CTAs to boost conversions. BONUS: How to write killer CTAs. 7. STATE OF THE CLOUD 1: The Bessemer Ventures State of the Cloud Report is out. It's packed full of highlights and well worth taking a deeper look at. But here are some highlights: AI is transforming the cloud, but concentrated at the model layer. AI investments have soared, and now every cloud company is, at some level, an AI company. We're certainly all more efficient at building, apparently. 8. STATE OF THE CLOUD 2: The consumer cloud sector is experiencing a resurgence (see the other Bessemer post at #5 above), driven by new innovative AI applications. This trend signals a revitalized market with new opportunities for growth and investment. 9. STATE OF THE CLOUD 3: The AI wars are well underway, and Big Tech's investment in AI is setting the stage for a major tech battle. All of the Big Tech companies are seeing big rebounds to "normal" multiples (along with big outliers like NVIDIA at 22x) and also on AI-quisition burns. 10. CASE STUDY: Three well-known SaaS success stories with very diverse paths, strategies (and financial health). Monday.com has robust revenue growth and solid free cash flow (also in scale-up mode). Atlassian is more established, with capital-efficient growth and high profitability. Despite strong revenue growth and being around forever, Asana struggles with high cash burn. POD OF THE WEEK: Dario Amodei, CEO of AI company Anthropic, talks about the amount of compute used in training (compute costs for models have been increasing ~4x a year). Dario is also predicting $1 billion and even $10 billion training runs soon! 1. SaaS METRIC OF THE WEEK: Margins by Revenue Stream. Understanding gross margins by revenue stream is crucial for a) SaaS profitability and b) Figuring out what products/features work and what don't. Check out the SaaS CFO's article on proper revenue stream accounting and a detailed SaaS P&L setup to enable accurate margin analysis across your revenue streams. Best-in-class SaaS gross margin for revenue is 80% as your reference point.
2. AI-OPS: This proposed AI infrastructure roadmap from Bessemer discusses the evolving AI infrastructure landscape, highlighting advancements in model scaling, deployment, DataOps, and observability. Key trends include purpose-built AI tools, novel model architectures, and integrated data management solutions, indicating significant opportunities for startups in the AI infrastructure space. 3. LIQUIDITY: As noted by the Wall Street Journal (paywall) and nicely summarized by Jason Lemkin at SaaStr, one of the paths to founder liquidity, the Private Equity folks, have their own liquidity problem. Cash for them (via M&A and IPOs) is down a lot, down 50% from the 10-year average. Some are even being forced to take out loans. This has massive downflow effects as it impacts and stresses funding availability for startups seeking investments. This is a bigger chicken and egg issue, with fewer exits and lower valuations, there are liquidity freezes across the industry affecting founder secondary sales, IPOs, and M&A activity. The reduction in IPOs and M&A activity results in fewer exits, lower valuations, etc., etc. 4. STARTUPS REPORT: The Global Startup Ecosystem Report for 2024 was released earlier this month. At a whopping 307 pages, it's one of the most comprehensive annual global startup reports (or editors maybe took the day off). TL;DR: Despite global GDP growth and signs of easing inflation, the tech winter persists. Series A funding fell by 46% (2023), and the slowdown in exits at the start of 2022 has locked in financial and human capital (see #3 above). 5. COMPENSATION: Links to reports on Founder Compensation are very popular in this newsletter, so it's great when you get some downstream questions also answered with this LinkedIn post from Carta listing what the first ten employees at a startup make on average (in terms of equity compensation). 6. BOTTOMS UP: Bottoms-up adoption is hard to crack😉 (learn more about the bottoms-up model here). For example, according to Gergely Orosz, Hashcorp has 4,300 customers in total, but only ~800 of them generate 90% of their annual revenue. Here is how to forecast. 7. USAGE: Most SaaS companies pay other SaaS companies to build their SaaS company. So Productiv's 2024 State of SaaS Usage report reveals helpful key trends in SaaS app usage for our SaaS Ponzi Schemes. Highlights: There is a 30% app usage increase and a 20% rise in costs, but 50% of these apps are underutilized. 8. PRICING: As mentioned in last week's post on pricing, AI-based products will disrupt traditional seat-based pricing further. AI product value aligns way more with usage than seat count, and Pricing AI products is complex due to unit-based costs (see #1 above on revenue margins to sort that out for you). Key challenges include determining units (requests, tokens), setting tiers (model vs. subscription), and implementing terms (prepayment, threshold billing). This all needs a robust billing framework to manage it. 9. POSITIONING: I've had this discussion with founders a couple of times this week. Positioning can be tricky, but it's a total Moat! Check this guide from MKT1; differentiate your product clearly without getting bogged down in details. Focus on who it's for, what it is, and why it's better. 10. CASE STUDY: Testimonials! Social proof is a massive factor for conversion attribution, and testimonials are the best kind (outside of case studies). Check out this list of testimonial examples from Hotjar, Whereby, Podia, Unbounce, and Memberstack. POD OF THE WEEK: Lessons on building products inside Atlassian from Tanguy Crusson, Head of Jira Product Discovery. 1. SaaS METRIC OF THE WEEK: VALUE-BASED PRICING: VBP is a tough nut to crack as it makes the most of what the maximum cost is that customers would be willing to pay for a product or service - this means there is no magic guesswork or thumb-suck number. These prices need to be arrived at Empirically. Paddle.com has a pretty good guide on what this means (with examples), and Paddle/Profitwell has a complete guide on making it happen (and explaining how to go about calculating/measuring it).
2. SALES COMP (PLG): Figuring out the right sales comp and plan is super tricky for high-growth companies and it gets even trickier for companies that have PLG + Sales. So check this guide on PLG Comp Plans from the team over at OpenView. 3. AI SPEND: It's estimated that B2B companies are spending $15B annually on generative AI applications right now, which equates to about 1% of all IT spending. We all know that number is only going to go up. 4. PROMPTFRAMES: A new term for all of our tech dictionaries. Promptframes are the AI version of Wireframes for UX designers and provide structured instructions to guide AI interactions, hopefully ensuring better outcomes and user experiences. 5. FAILING: I think that this is a skill. Successful failure is an oxymoron that requires a culture of safety and permission to be wrong. Tall Poppy doesn't help that out. Many organizations look to best failure practices from the tech industry. One hard lesson is that innovation needs a lot of failure before success, something they often do not configure culturally within a business. 6. ONBOARDING: Doing this well is key to increasing value, lowering churn, and being a PLG growth-driven business - aligning the product value with user goals is key! Check this onboarding guide from Userpilot, look at employing some diverse tools and channels, and focus on smooth user transitions - all good for enhancing retention and engagement. This Substack article also highlights the importance of what needs to be under the hood - good data analytics, conducting experiments, and building a community centered around the product. 7. PITCH: Want to compare how your Pitch Deck compares to others? Here is an absolute MEGA resource of links for you (and your pitch team). Pitches from AirBnB, Uber, Shopify, lesser-known startups, and famous flameouts (such as Fyre) can be found on Billion-Dollar Pitch Decks and Pitch Deck Hunt. A cool approach from OpenDeck lets you search by Category/funding year. If you want to see a breakdown/analysis of pitch decks, then look over at Alexander Jarvis - he has over 500 decks broken down by the good and the bad. 8. SEAT-BASED PRICING: Clouded Judgement asking the big questions - is the traditional seat-based pricing model dead? PLG models have already signaled the decline of seat-based pricing in SaaS (as it can seriously impact growth), but AI-based products may likely disrupt this further; the product value aligns way more with usage than user count. More akin to database software pricing, which emphasizes data architecture usage over user access. 9. GROWTH: ChartMogul has just released its SaaS Growth Report, which compares Bootstrapped vs. VC-backed startups' growth metrics. TL;DR Bootstrapped SaaS companies adapt faster to market changes but grow slower than VC-backed firms, which initially thrive but struggle more in downturns. Both rely on expansion for growth, but bootstrapped firms maintain steadier retention rates. 10. CASE STUDY: From the team at product led and complimenting #6 above, here are 36 best user onboarding examples from analyzing 150+ companies POD OF THE WEEK: Following on from #7, Hiten Shah does a master class on How to pitch your startup. Providing founders with an investor perspective, the impression they'd get, and the questions they'd likely face. 1. SaaS METRIC OF THE WEEK: Multiples. Valuation multiples are so important for determining a company's worth. But they also seem so mysterious as they vary wildly based on growth stage, industry, and deal size. Dealroom has published a new multiples valuation guide with some great visuals and charts to help us all understand this mysterious metric better and also make data-driven decisions.
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 with some great analogies and tips on how to influence the product roadmap. 3. DIFFERENTIATION: This is a tricky question founders get asked all the time. Standing out in a saturated sea of SaaS is a tricky problem to solve - pro-tip - never do it on price alone. So ask yourself, "Why should someone buy from you?" It requires balancing familiarity and differentiation. Read this article to get you thinking about the topic more. 4. AI: Never first to market but traditionally excellent at execution, Apple introduced us to "Apple Intelligence" this week, its own generative AI system designed for pretty much the whole lineup - powered by ChatGPT! The stock popped to an all-time high on Wednesday. Because this is the AI -Wars, Elon really didn't like the news and immediately threatened to ban any Apple Device in his companies, including visitors - lol. Then, the next day, he withdrew his lawsuit against OpenAI (no reasons given yet). 5. AI VOICE: With the release of ChatGPT4o, AI Voice seems to have reached a mass audience. I talk to my ChatGPT phone app daily. Hot on the heels of that, A16z released their thesis on the AI Voice stack (highlighting Play.ai as one of the leading full-stack players, the ChatGPT of voice)—you can view the thesis via their Gamma AI presentation app here. AI voice agents are transforming phone interactions, and there are some promising applications across various sectors. 6. SPVs: One for your tech dictionaries. Special purpose vehicles, or SPVs, are where multiple parties pool their money to share an allocation of a single company. And because AI is so frothy right now and small investors can't invest directly, they can only buy via SPVs (which are risky and have high fees). 7. COMPENSATION: I see a founder compensation report, and I list it. (Don't forget about the TechCrunch article from last year that recommended that founders pay themselves rather than doing it for the equity.) So how much? Take a read of this US-centric Founder Salary Report from Pilot. TLDR, the median amount is $132K, the average is $142, and for pre-seed companies, that median is closer to $100K. 8. VALUATIONS: If you are ready for a long read extending off of #1 this week, this one is for you on Startup valuations with a VC lens. It's a very detailed article on startup risk and how these risks factor into how VCs underwrite their valuation decisions. For any startup operators, this article is a gold mine of insights into securing stage-by-stage financing, validating go-to-market hypotheses, and focusing on building strong teams to help address those underwriting risks. 9. INDUSTRY: ChartMogul's May Benchmark data is out and shows that growth mirrored April (as in, we're still at the "it's not getting worse" phase). Growth rates remain steady. But drilling deeper reveals some potential positivity (or rather not-negativity): Retention rates remain steady at 63%, and certain ARR and ARPA bands saw some improvements. We need to check in for next month to see if these persist. 10. CASE STUDY: GROWTH HACKS. This is a fun case study of unethical growth hacks used by Startups in their early days. Starring Uber (and their legendary Greyball System, and if you haven't watched the TV show yet, I highly recommend SuperPumped), Reddit, YouTube, Facebook, and OpenAI. POD OF THE WEEK: Here is a deep dive with Harry Stebbings and Jason Lemkin into seed investing (where things are expensive and limited with a broken pipeline to IPO). 1. SaaS METRIC OF THE WEEK: Net Dollar Retention is an important metric in product-led growth and consumption-based operations. It helps answer the following: Does my startup need to increase customer acquisition/marketing spend? Crunchbase has already done the work to calculate what good NDR benchmarks should look like, and Tomasz Tunguz looks at what it takes to achieve 200% NDR!
2. M&A: Navigating some kind of acquisition process is a relatively unexplored topic in this newsletter, so check this guide to running an M&A process as a Founder from First Round Review. 3. FUNDRAISING: Carta has a great LinkedIn post that provides a snapshot of the key fundraising metrics from the last quarter. Benchmark yourself! Pre-money valuations for rounds held steady for Seed and Series A, with slight median growth for Series B and C and an upward trend in total amounts raised across most stages. 4. MARKETING: Enterprise Marketing is difficult, and the fun part is that it's getting increasingly harder, yay. 42agency has a great article with 10 different Enterprise Marketing playbooks for you to review. They also introduced me to a new app, Clay, which looks to be a super useful tool (but a little pricey). 5. AI: Adoption is ramping in many areas; 4 in 10 e-commerce marketers use AI for customer service and support, and Andrew Chen notes many more use cases. McKinsey also notes that businesses that adopt AI are seeing benefits like cost reduction and revenue growth. 6. SUPERCYCLES: This is a genuinely great read IMO and one that dives deep and also makes the claim that the first golden age of SaaS is decidedly over, as it's the dawn of AI-SaaS (hard agree from me) and tying it all back to capex/opex cycles and now CPU/GPU cycles (and their commoditization). But there is a lot to absorb here; to me, it's a more-than-one-read-through article. 7. FAILURE: It's a common tech-ism that innovation needs a lot of failure before success, something businesses often do not culturally configure. CB Insights has analyzed almost 500 startup failure postmortems - PMF, Cash, and Team Dynamics (see #9 in last week's newsletter!) play pretty consistent roles across the board. 8. TESTING: According to ZipDo Essential A/B Testing Statistics, 70% of marketers believe that A/B testing is essential to boost conversion rates. When running A/B tests, get started 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. 9. SENTIMENT: The Clouded Judgement Substack is always full of really interesting data. This week is all about sentiment and the current sentiment in the software industry is not looking great. This is mainly due to disappointing Q1 earnings and lowered Q2 guidance (70% of companies are guiding a below-expected Q2). The biggest issue is that growth has slowed, making revenue multiples less relevant as a valuation metric. Investments in AI are causing additional traditional software apathy, and interest rates continue to add pressure to valuations. 10. CASE STUDY: Building AI features is a risky move, as, realistically, you can't know the quality of an AI response without building the system to see an actual AI response. So check out this great case study from dopt.com, which makes the mind-bending observation that "you must build AI to learn what AI is valuable to build." POD OF THE WEEK: Lenny of Lenny'sLenny's Newsletter interviews Cameron Adams, co-founder and chief product officer of Canva, who now have 150 MAU in more than 190 countries, and $2.3 billion ARR (and ready to IPO next year) 1. SaaS METRIC OF THE WEEK: Fundraising Metrics. Make your fundraising way less chaotic by getting these metrics dialed in. Unless you are pre-revenue, Investors will expect to see detailed ARR, CAC, LTV, retention rates, and engagement metrics. A strong data deck (or data room) can answer investors' questions and show a clear path to growth.
2. GROWTH LOOPS: Elena Verna (Head of Growth at Amplitude) gave a great presentation about predictable and defensible growth loops and how to make money from them. Elena makes the interesting argument that revenue is an outcome and should not be a KPI in Growth. Reforge has a recent article with some examples and feedback on how to put Growth Loops into action. 3. WEB: Super interesting read from The Pew Research Center: Digital Decay, a quarter of all pages that existed from 2013 to 2023 are now unreachable, with pages often deleted on otherwise functional websites. 4. INTELLECTUAL PROPERTY (AI): Historically, in the Tech World, many startups have been vulnerable to their competitors producing copycat technologies - looking at you Meta/Facebook. Generative AI raises newer questions on intellectual property – who owns AI-generated content, and who benefits? (Google AI search already has ads - gross!) This article from Benedict Evans delves into the complexities - looking at ownership, moral rights, and potential exploitation. 5. UN-SCALE: Sometimes, while building a repeatable scaleable business model, some un-scaleable things have to be done. This article highlights three specific non-scalable things sales teams should be doing right now. 6. INVESTMENT: Carta's "State of Markets Q1 2024 Report" is out with some quality insights critical for those of us looking to raise a round (or others of us planning our runway). Funding rounds are down by almost a third, and investors are being selective (if not AI, then solid growth potential and fiscal sustainability). In the Seed/Series A side of town, over 40% of funding was directed at bridge rounds, which I assume are VCs protecting their existing startups and funds. 7. PRICING: This is an excellent report from Vendr: The SaaS Trends Report for Q1 2024 (B2B only). You can compare quarters from Q1 2020 to now: Renewal ACV and Net New ACV (after a remarkable drop last year) remain flat, and buying life cycles are getting longer. Cybersecurity is the leader in new-category purchases. A cool feature at the top is that you can select and compare the category your SaaS may be in. 8. MARKETING: Hubspot continues to report on marketing data gathered via the platform with the State of Marketing report. TL;DR: Marketers focus on AI, with 77% saying AI helps create personalized content. In this business environment, efficiency, personalization, and innovative tools will drive marketing success in 2024. This other Hubspot page pulls some good stats. Again, TL;DR, the average landing page conversion rate is less than 10%, the average bounce rate is 37%, and the SEO click-through rate is 13%. 9. TEAM: Check this stat: VCs say startup success depends on your TEAM DYNAMICS (56% of them), then timing (12%), and tech (9%). Tech sector likes teams more (64%) than healthcare (42%). 10. CASE STUDY: Notion is a great product, and notably, to me, they also run some pretty impressive marketing tricks. First Round Capital agrees and has a great case study on their different strategic layers of Marketing, especially with community. POD OF THE WEEK: From a16z: Metrics and mindsets for retention and engagement as marketplaces and other platforms evolve over time. 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. |
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