Top 10 in Tech - What to know for Week ending September 25, 2020

David Skok is a legend in the SaaS world and I have written about his work a little in the past, as well as convincing him to speak at an event - gifting South African born Skok with an All Blacks rugby top was an outstanding idea. 

The annual KBCM Technology Group SasS report which Skok is an endorsement partner for 2020 is now out and is a special COVID Edition. I’m dedicating this weeks newsletter to 10 top nuggets from this report as it’s the industry go-to benchmarking report. The full report can be downloaded as a nice PDF here (It’s also the ten year anniversary of the survey). There are way more nuggets in here than the ones below. So be sure to take a deeper read.

1. GROWTH 1: Ouch! There is still growth, but the top line growth projections for 2020 have been pretty-much cut in half. 39% growth was expected as of January, by the end of June it was reduced to 20% (2019 was 36%).
2. GROWTH 2: These two charts may show a better visual of what the above means. 2019 was a typical year in growth for SaaS and 2020 looked the same (at least in January) until COVID forced a massive change in 2020 revenue forecasts (green is more, red is less) with the end of June re-forecasts.
3. GROWTH 3: If you don’t know by now, Silicon Valley has a bit of an obsession with SaaS growth. The 40% rule (nice little video explainer for ya) is an examples of that. TL;DW when a VC backed SaaS businesses adds profit + growth rate, the total should be equal to 40% or ideally more. This helps calculate the cadence of a business: The faster they grow, the less profitable they need to be. Here is Skok’s 40% rule chart of the companies surveyed. It’s a high bar with just a couple of dozen of the 200 respondents hitting or surpassing that line. 
4. CHURN: Anecdotally in 2020 I have churned or reduced plans both professionally and personally with quite a few SaaS products in my desire for more work-life austerity. So how does my sentiment resonate across larger industry trends of churn? Covid Churn is definitely a thing and the report recognizes a YoY trend of a dollar churn increase from 12.5% in 2019 to 13.9% in 2020, 20% of which was attributed to Covid.
5. CAC: Also increased across the board for 2020 (covering new, up-sell/cross-sell and blended CAC). Every dollar of new revenue in 2020 costs $1.60 (compared to $1.35 in 2019). Up-sell and cross-sell still remains the CAC bargain, but it’s still up YoY, with each dollar of new revenue costing $0.69 in 2020 (it was $0.61 in 2019). Big impacts to sales efficiency.
6. CAC PAYBACK: Increasing CAC also stretches out the 2020 customer CAC payback period, from 1.9 years average in 2019 (which is a crazy big number IMO) to an even larger 2.4 years in 2020 for new customers. This means it will take a 2020 SaaS company 2.4 years to reach cash profitability per customer - that is an expansive trough! Up-sell and cross-sell remains much closer but still significantly up - 8 months in 2019 to 1 year in 2020. This really highlights what will be a deepening dependency on Capital to fuel SaaS companies growth.
7. FUNDING: Adding on to my last sentence above, only 14% of companies surveyed were Bootstrapped or Independent.  A cool slide this year is breaking down performance based on funding type. VC-backed business demonstrate better growth, but at the total expense of margin, which is very much negative in comparison to their bootstrapped peers which YoY remained profitable (but with a significantly smaller average deal size). Correlating these deal size categories to forecast growth highlights that the low end of town retained the best re-forecast for 2020 (25% growth)
8. SALES: The primary mode of Sales and Marketing efforts remains Field Sales based in 2020, but has shrunk from 54% last year, with Inside Sales taking a growing chunk of the remainder. (28% last year to 33% this year). Sales forecasting took a big hit too with over half (52%) of companies forecasting a reduction in revenue forecasts for the remainder of the year.
9. DEAL SIZE: For the most part this is pretty evenly split between 3 categories: Sub $15k (32%), $15-$50k (30%) and $50k-$250k (29%). Over $250k deal size remains the exclusive group with just 9% of surveyed respondents. 
10. DELIVERY: This is a great trend but lifted taken from the 2019 report (as it wasn’t reported this year), it's one of my favorite slides. How is a SaaS product shipped? 88% today use third-party cloud (up from just over 60% 4 years ago). AWS remains solidly dominant at 60%  but with drop from last year as Azure and GCP have seen gains and Hybrid-Multi-Cloud will be an emerging option as competitive pressures mount. AWS also dominates across companies of every scale but self managed infrastructure is more common at the high end of town.

POD OF THE WEEK: Of course it’s from our good buddy David Skok, choosing the right metrics for the right growth stage.