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.