Top 10 in Tech - What to know for Week ending June 28, 2024

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.