📕 Weighing Growth vs. Profitability; First-time founder growing pains; How to show validation when you lack data...

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☁️ VCs look for immediate and extreme growth in their investments, so the profitability of the companies they work with is the least of their concerns. But striving for sky high growth can be costly, and not just in dollars. Dumping loads of capital into marketing makes it nearly impossible to identify your real cost to acquire customers (CAC), and if your CAC remains high over time, you run the risk of never being able to build a sustainable model. There are, however, some notable software businesses who have taken the road less traveled, achieving profitability while also growing to an impressive scale. Both profitable and high burn companies can generate great returns for investors, we would just argue that the profitable ones also create good outcomes for founders!

🎼 Businesses’ software stacks are getting crowded. On average, companies have 37 different software vendors at one time, and we bet it’s even higher for SaaS companies. The question is, do all of these tools really improve workflow and productivity, or are we overloaded? OMERS Ventures thinks poor communications between tools is the biggest issue with our ever increasing software stack, and a new breed of data orchestration software, which help these products seamlessly integrate with other apps, is the likely solution. API-first players like Zapier, Plaid, and Stripe have already made significant progress in addressing the needs of SMB and mid-market companies, but public APIs and API solution providers have a ways to go, as they struggle to match the speed of smaller, agile businesses.

🧻 Storytelling is one of the hardest tasks for first founders because they often don’t have the data or work experience to build their story. Liran Belenzon shared a great story of how he got creative when faced with that exact problem. He needed to raise a bit of capital when pursuing his first venture, but their product was not at a point where it would have won customers over, which they needed to get investors excited. To show traction, he had a freelance designer build a paper prototype which demonstrated how the fully built tool would function to customers. The idea on its own was enough to sign up 200 prospect for their MVP, which was instrumental in showing traction to investors in the fundraising process.

🌠 Perhaps an unpopular opinion (with founders at least), but they rarely start out as good leaders. It’s no fault of their own, it just usually takes time for them to acclimate to the task of leading others while also getting their day to day needs accomplished. The curve can be steep – the atmosphere surrounding software is of course quick in nature and constantly evolving, so the time it takes to evolve into leadership is often not given to the founder. That said, startups which take a more moderate approach to growth typically allow time for founders to find their way and grow in leadership, opposed to fast growth companies where the founder has to learn quickly.

📕 Why investors continue to bid up valuations; Low-touch demand gen models; Content splintering...

Welcome back to The SaaS Playbook, a bi-weekly rundown of the top articles, tactics, and thought leadership in B2B SaaS. Not a subscriber yet?

🌎 TAM (total addressable market), SAM (serviceable available market), and SOM (serviceable obtainable market) are the typical tiers used to demonstrate what a company’s market could be. But none of them focus on the near future of your company – TAM’s are generally represented as $1b+, which isn’t going happen in the short term. That’s why Fairbanks Venture Advisors suggests early stage founders think about their Launch Available Market, or LAM, to map out and show investors who your initial targets are going to be. LAM is calculated by estimating conversion rates of your acquisition activities (or using the real rates if you have the data) then applying your ARPU, and other bottom-up approach assumptions that show you are accounting for all variables.

⚖️ Early stage SaaS investor Kenn So penned a great essay on why investors continue to bid up startups prices, even though they would admit they are overvalued. It starts with a simple supply and demand equation. With only ¼ of the number startups being created today as there was in 2010 (see below), and a 380% increase in the amount of VC raised since that same year, there is high investor demand for a small supply of investable startups (you have to deploy to stay in business, after all). And while the amount of startups exiting has decreased 5% over that period, the amount of money exits are generating has grown significantly, justifying VCs to bid further. One notable difference from the early 2000s to today – 80% of startups are burning cash at the point of IPO, while not growing much faster than the more capital efficient cohorts of earlier years, a pretty eye opening stat.

🌾 Most B2B SaaS companies start with a low touch sales model before building an SDR team and moving upmarket because low touch also generally means lower cost. Marc Thomas from PoweredbySearch went against the grain and started with a direct sales model before moving down market to build a B2B SaaS demand gen flywheel. He shared a template for building that model which stemmed from his learnings, from positioning to website structuring, and also has a separate piece with some additional notes on the principles discussed in the model which is a good supplementary read if you enjoy the first!

👓 The Wall Street Journal’s legendary “Tale of Two Young Men'' letter tells the story of two men with similar backgrounds who work at the same manufacturing business. 25 years down the line one man is in the same role and the other is president of the business, the only difference being that the president educated himself by reading the WSJ. That story, which resulted in over $2B in subscriptions during a ~30 year period, follows a clear “two path” storytelling framework which can be applied to pretty much any SaaS business. While it has lost some of its novelty through gained popularity, it’s a good framework to use in messaging where you are looking to demonstrate how you beat the competition without boasting.

🪓 Getting content right is time consuming, but if you want to maximize the channel, there’s no way around dedicating real resources to it. When looking at content ROI, you measure the cost to produce your content and the resulting engagement and conversions over time. It can take a while to generate returns from one piece, so an efficient way to improve your ROI is in the short term is by content splintering – creating similar content focused on the original topic with tweaks that make it unique, and publishing it across separate channels. Aside from being a money and time saver, splintering enables companies to test new channels because few resources are needed to adapt your existing content to whatever new channel or platform you are testing.

📕  Evolving trends in SaaS metrics; Understanding liquidation preferences; How to be a clear writer...

Welcome back to The SaaS Playbook, a bi-weekly rundown of the top articles, tactics, and thought leadership in B2B SaaS. Not a subscriber yet?

🥤 One of the often misunderstood aspects of term sheets is liquidation preferences. These preferences give VCs the right to receive the funds they have invested before any common shareholders, such as founders, if a liquidation event occurs. That doesn’t just mean in the case of bankruptcy or winding down your company – any sort of transaction in which there is a change of control is considered a liquidation event. This read covers the differences between non-participating prefs (VCs get a multiple of the funds they invested OR a percentage of the stake they have in the company, assuming the shares convert to equity), participating prefs (VCs get both a multiple of their investment and a percentage of the investment made), and other key terms to know.

💭 “Write poorly and they notice the style; write well and they notice the idea”. That message on the importance of clear writing is taught to all Amazon employees, along with the idea to not write to impress others, but to express ideas. This list from Ex- AWS product manager, Danny Sheridan, covers 5 tips from Amazon’s Doc Bar Raisers (employees who participate in the final round of new hire interviews) on how to write clearly. One suggestion is to write in rhythm – varying word count and sentence length to hold the reader's attention – in particular is an easy change to make that can drastically improve your writing today.

🥣 At Gainsight’s Pulse 2021 conference, SaaS advisor and consultant Dave Kellog took the stage to share net dollar retention (NDR) benchmarks and evolving trends in software metrics. Median NDR for private companies is up to 104% and the public SaaS median is 111% – both growing numbers due to NDR’s increasing impact on valuation (churn is a dead metric) and more companies adopting usage models which are ideal for growing contract value over time. He is also covers issues with the life time value (LTV) metric stemming from low or negative churn rates – for example, a 3 year old company with very little churn could show a 20 year LTV, when in reality there isn’t enough data to prove that. The full slides are available here.

🍲 We are going to stick with the topic of consumption based pricing (and food emojis) with this piece from our friends at Chargify, which shows how the pricing model isn’t just good for your NDR – it can actually be a driver of product adoption. First, it lets users try out your product with a lower cost upfront, so your conversion rates should go up given that the pricing model is more customer-friendly than inflexible flat rates. It also should reduce churn because your customers only pay for exactly what they need and seamlessly upgrade as they increase usage, units, or whatever variable you base your pricing on. This is much smoother than forcing customers to increase a maxed out subscription mid month (a useless point of friction).

📕 Jumping on VC Treadmill; Q2 2021 Private SaaS Company Multiples; How to Steal talent from Big Tech 

Welcome back to The SaaS Playbook, a bi-weekly rundown of the top articles, tactics, and thought leadership in B2B SaaS. Not a subscriber yet?

🏃‍♂️ People often refer to raising venture capital as “jumping on the VC treadmill” because once you get on it, it’s very hard to get off. Astronomical growth targets require founders to spend all of the funds they raise quickly, putting them in an all out sprint to gain traction so they can raise their next round. David Sacks’ recent post on venture backed SaaS Org Charts gives a flavor of just how fast these companies need to scale their teams to have a shot at hitting those growth goals, explaining that Series A startups typically have at least 1m in ARR with roughly 40-50 employees, while Series B companies are looking to have at least 5m in ARR and 100-125 employees. That massive jump in headcount puts businesses in a scary position, because if they don’t raise that next round, there are significant cuts required to reach profitability, and ultimately, survive.

📈 Public SaaS company multiples continued to roar in Q2 2021 (at the lower end you are seeing 4-5x revenue multiples for ~10% annual growers, which feels beyond generous!), but the question we are all wondering is what impact that has on the private sector. SaaS Capital’s data shows that while there has been an uptick in private company multiples, the premiums are being mostly seen in growth stage businesses who are up ~50%+ year over year. Our thought: buyers are likely looking for more growth from small startups than the bigger players because they just don’t have the scale (and stability) of public entities, which presents more risk.

🏆 For pre-revenue startups, your initial outbound strategy is used to get product feedback rather than actually close deals – you have to make sure potential customers are actually picking up what you're putting down before executing on your initial thesis. Liam Mulcah (Director of Sales @ Unusual Ventures) has an unconventional way of segmenting potential customers, breaking them down into 3 buckets (startups, challengers, and champions) which can help you understand what they are prioritizing at their current stage, and hopefully enable you to better sell to them. He includes an example of a 14 day, 7 touchpoint outreach sequence which some of their companies have used for both LinkedIn and Email, as well as a sales outreach calculator so you can play with levers to see what sort of metrics you need to hit your goals.  

🧛 When trying to hire top talent, it’s very unlikely that you are going to be able to out-pay the likes of Facebook, Amazon, Google etc.. But that doesn’t mean you can’t steal some all stars from the jaws of FAANG, it just means that you need to be more creative on how you present the opportunity to work at your startup. The area which big tech companies will never be able to compete with more agile startups is impact – rather being a cog in a massive machine, they can be on the ground floor of building a team where their footprint will be seen. Of course, that pitch will fall short on those who are looking for a more stable option and big company perks. But, if done right, it should at least make them think twice...

📕 Transitioning from product led growth to enterprise sales; Headers to 2x your homepage conversion rate; The new product management career path...

Welcome back to The SaaS Playbook, a bi-weekly rundown of the top articles, tactics, and thought leadership in B2B SaaS. Not a subscriber yet?

🍩 Product management careers get treated differently than engineering, design, and most other tech careers in that there isn’t a point where you can comfortably stay an individual contributor – the idea is to move up in your rank, or move out. There seems to be a much lesser focus on the PRODUCT part than MANAGEMENT in product management, which is why Ken Norton (previously Director of Product for Google), argues that we need to fight for  a dual product management career path. What he means by this is a role where you manage the product resources for a project rather than a full division, because the reality is that not all people are suited to (or even interested in) being leadership. This non-management role can be key to innovation for big companies as well, because it enables the employee to be an individualistic thinker and avoid the sometimes cumbersome process and structure you find in big co’s. 

🔔 The Bell Curve marketing agency, (who also the Demand Curve marketing group), have written loads of websites in their day, and knows what kind of content it takes to convert visitors into customers. In a recent TechCrunch feature, they highlight a few ways you can improve the conversion rate on your homepage by crafting a sharp header and designing with intention. They provide a pretty cool framework to uncover your value proposition which you can use as a header – you start by describing a bad alternative people resort to when they don’t have your product, then follow up with a sentence describing why your product is better than that bad alternative. Lastly, you turn it into an action statement. Using AirBnb as an example, their bad alternative is “stuck in sterile hotels, don’t experience the real culture”, with “stay in locals’ homes” as the good one. Making that an action statement looks like “experience new cities like a local”. Voila. 

🦁 Drift is known for its early product lead growth strategy, in which their users’ chat boxes were the leading source of customer acquisition for the business. It created a great flywheel effect – new customers meant more Drift branded chat boxes on their websites, with each website’s visitors being subjected to the brand, creating new sets of customers. But recently, they have gracefully pivoted more towards the enterprise, with their average sales price tripling from Q4 2020 to Q1 2021. Elias Torres, the co-founder of Drift, explains that the desire for better retention rates and a higher ARPU prompted the shift, as well as the specifics of how they made the switch.

🧶 Bessemer Venture Partners hosted a B2B SaaS pricing roundtable last month with some notable industry experts: Lekha Doshi (LinkedIn), Akshat Gupta (Airtable), and Ross Biestman (ServiceTitan). They called out some common pricing mistakes, the first being indecisiveness with your model. Lots of groups set up with a “just for now plan” and never end up revisiting, as “nothing is as permanent as a temporary fix”. This is especially true with pricing, where it can become incredibly difficult to untangle your model as you become more reliant on those processes. Another frequent mistake is not defining specific goals around pricing. You need to create a few hypotheses where changing a variable will result in better take up from the market, then run with it!

🎶 Tools like Gong and Chorus.ai get most of the love when it comes to sales enablement, but conversational intelligence is just one small piece of the sales enablement puzzle. Ben Cotton does a good job of breaking down the different categories within the space, as well as some of the top vendors which might not have heard of. Sales coaching software, which provides more detail on recommendations and which reps might be best suited for different parts of the sales process, is an area in particular which we think has a lot of potential.

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