Is AI the Only Thing in SaaS that Anyone Cares About Anymore? AMA Part 1 w/ SaaStr CEO Jason Lemkin

Welcome, welcome. So this week, lucky us, we are here with Jason M. Lemkin to share some just open AMA time. This is something that's requested often throughout the season of people wanting to just pick Jason's brain. And when we're all kind of in this planning phase and closing out 2023, trying to figure out 2024, we knew this would be really timely. So we're going to have plenty of time for Jason to get to as many questions as we can. So really excited for everyone to join the conversation and welcome Jason.

For sure. We've got, you said, I think Taylor, you said we had a few things queued up from before, so we can, we can just dig in.

That sounds good. Okay. So Jason, this one came in via LinkedIn. So we had an audience member ask, what will be the early and mid investor appetite for SaaS startups in the sales tech space in 2024?

Well, look, let me, let me step back and I've discussed it a bunch of times. Other speakers on the series have talked about this. We talked about this on the G2 Reach Growth event. Two things, generally speaking, they're for now. For now, there is very limited investor appetite for anything that isn't true AI. And you know, why is that? There was a legal tech startup this week, uh, that got funded at $700 million valuation at $10 million in ARR. But then in fact, uh, this legal tech startup was founded by one lawyer who hadn't even been a lawyer for a year and quit and did a legal tech startup after one year after working at a firm. But because of AI, they went from 1 to 10 in one year. So if you can go from 1 to 10 in one year, uh, mathematically you can probably go from 10 to 100 in the next year. And so if you're doing that in any category, even an impacted category like sales and marketing, everyone is going to fund you. But more importantly, the thing to understand is we're in a weird world today where if you look at the stock markets and ultimately VC investment is tied somewhat. NASDAQ is at a record, great growth. S&P is at a record. But many startups were hit the hardest of all, right? The lowest growth, even though Shopify up over 100% this year, so many other leaders. So folks are just still looking for outliers and they're mainly looking for them in AI, true AI companies that can grow at such large rates, your jaw drop. And there isn't any venture appetite for pretty good growth. There just isn't any. There's none. There's zero. Absolutely none. There's no appetite in general. And importantly, to folks that watch that are here today or watch later, at later stages, there's absolutely no appetite. So really biggest risk in venture funding, the real risk that a lot of founders have today, almost every single founder I talked to, including multiple conversations this week that have raised a seed round or an A round or whatever, they all think the next round is going to be easier than it is. 100%. No one is realistic. They don't understand that one, because public multiples on average are about 6x, there basically are no growth rounds happening. There basically are no rounds. North of $200 million valuations, because for an investor to make 10x on a $200 million valuation with dilution, you have to have a $2.5 billion IPO. There just aren't very many. Most SaaS companies aren't even worth $2 billion today. So it's very difficult for a growth investor to invest over $200 million valuation for your Series B, Series D, E, F, G, H, I, J, no matter how well you're doing. They have to believe you're going to be better than Klaviyo. They have to believe you're going to be a Canva. To justify not even a billion-dollar valuation, a $200 million valuation. And that ripples all the way down except in seed. But in seed, everyone's still an optimist. There's so much money in seed and pre-seed. Everyone still believes you could be a Datadog or a Canva, and someone will be every year. Every year there will be a Snowflake or a Canva and a Datadog. And so hope springs eternal in seed and pre-seed, and that's good for folks raising that. But after that, unless your growth is crazy and your AI, there just is no oxygen. And, you know, today we had two discussions this year. We We had one with David Sachs, who now has $3 billion at Kraft, and we had an offline discussion with Byron Dieter, who runs Bessemer's cloud practice, and they both said over 80% of our money in SaaS is going to AI. So bear that in mind. And then, and then you add sales and marketing. In many ways, this is the most impacted category, right? You see app vendors that we've all relied on for years, Salesloft, Gong, Outreach, hit a wall this year, right? See declines. And we just did an interview with Henry Shuck from ZoomInfo. ZoomInfo's at billions in revenue. They're a category leader. Two things have happened for ZoomInfo. One is that folks cut every seat that wasn't being used, every dollar, every nickel of ZoomInfo. And it was really interesting what he said. I think he said before 2022, going into 2022, an account that was about 80-something percent utilized was considered at full load, right? They could sell you more seats, more, more users at 80%. Now it's over 100%. So they're getting like a 12%, 15% churn just from folks putting in the energy to manage their ZoomInfo accounts. We didn't used to do this. We didn't have time. We didn't have time to figure out how many Gong seats we were using or exactly who was using ZoomInfo on our SDR team. We didn't have time. We were going, going, going. We were busy, busy, busy. Now everyone's like spending precious energy managing all of this sales and marketing spend. So that's a tough trend across the whole industry. And so I'm, it's a rambly answer to say, yeah, it's a tough category. And I think that there is, relatively limited interest at all from investors unless it's AI. With one final point, here's the really interesting thing about sales as a category, which has really changed. You know, I invested in Salesloft. I got involved with Salesloft basically pre-revenue, and no one wanted to be in this category because they felt like we could only afford a couple sales tools. Like there wasn't any room for a Salesloft or an Outreach or anything, because you would buy Salesforce and 2 or 3 tools and that's all the budget. And then the budget's inflated and we had room for 80 or 90 sales tools, which we bought. In many cases by today. But what has changed is that sales is a category where at the early stage folks just want to build more and more products. We have more CROs and CEOs that are into that. Tracy from PlanGrid built SaaS for, for the construction industry, sold it for $700 million, sold PlanGrid. What did she decide to do next? Build a sales tool. There is like at a personal level, there is a lot of interest in this category. And so that will spur more and more innovation. So on the one hand, if there's no AI, you're— it's tough. Two, it's an impacted category that got overly scrutinized for spend and stuff. But three, so many people are passionate about the category that innovation, it's like a wellspring, like it's never ending. So that will create waves of innovation that doesn't happen in other categories. Everyone gets sales. It's good and bad, but it will create endless, endless innovation.

Okay. Our next question is from Chris. Chris, would you like to jump in?

Sure.

Thanks, Taylor.

So Jason, my question is about the, I guess you can call it a subcategory of SaaS solutions that are pre-built or pre-tailored by vertical industry. We have such an app that's been pre-tailored for two industries.

I just want to get your two cents.

Do you think that customers are ready to buy into enterprise-level apps that are pre-tailored? Look, I actually think it's nothing new. I mean, check out the story of ServiceTitan, SaaS for technicians and HVAC maintenance. As vertical software is nothing new, there has been a niche piece of software for bookkeepers, for dentist's office, for doctor's offices. We think these are like new categories. They're not. Walk into any of the oldest. There are multiple categories of SaaS for veterinarians. Okay. I don't know if anyone will have a $10 billion outcome, but people have been writing DOS programs and Windows programs for years. So it's not new. And it's certainly the case. Look at Toast. Let's just do it for, for restaurants. Toast is essentially taking a combination of Square, right? Plus other systems say, we're gonna do Square for restaurants. Square had a little bit of point of sale, right? It had its readers. And actually a, a significant chunk of Square's business is to restaurants, right? To small restaurants. Toast said, hey, we're gonna just do one thing. Right? And so there's lots of stories. Klaviyo, which was the only IPO of this year, is marketing just for e-commerce. In fact, Klaviyo really is just marketing only for Shopify customers. 70% of Klaviyo's almost $1 billion in revenue only, not only, only comes from e-commerce. It only comes from Shopify, but e-commerce, but, but emails for e-commerce are much more valuable than normal emails, right? Because they're so close to revenue, right? They're so close to revenue that Klaviyo actually makes much more money. It's gonna eclipse MailChimp, right? And it may even pass HubSpot as a HubSpot's marketing piece because it's so valuable in e-commerce, right? Because you're so close to revenue. I don't think vertical as anything new. I do think by adding more value, by running payroll, by running payments like Shopify, by doing more stuff for verticals, it turns out the categories can be 10 to 100 times larger, right? I don't know exactly before ServiceTitan how big the HVAC software category was, but it was pretty small. Okay. Look at Shopify today. Two-thirds of Shopify revenue comes from payments and financial services, not from software, right? So these are the kind of things, these are examples of things things that expand the market. But again, I don't think vertical SaaS is new. And my— here's my personal view for about 10 years of looking at this. Every industry of any size, any industry with 100,000 or more customers needs a system of record. They need a core operating system. ServiceTitan is an operating system for plumbers, janitors, HVAC. It's not just a tool. It is an operating system, right? So if the market's too small, if the vertical's too small, then you can't get enough scale because SaaS is hard to build, right? You need a bunch of smart people, but any industry with 100,000 or more, you can probably support a $10K or more ACV if you add $100,000 of value to that industry, no matter how small. So that's the art. Can you add 10 times more value than you charge? And can you be number one? There isn't necessarily room for 20 vendors in a lot of vertical SaaS, but there's room for two. And there's room for one big one and get your ACV up to $10K because below that there's often not enough customers in vertical SaaS to get there, but $10K above, right? What's $10K times 10,000 customers? It's a pretty good business. Thanks, Jason. Much appreciated.

Thanks, Chris. We're going a little out of order, but just because someone asked a relevant question to this conversation, specifically about extension products. So John Becker, do you want to come on and ask Jason your question?

Sure, Jason, thanks for the, thanks for the time.

And yeah, good timing.

So what are your thoughts, I guess, on platform, on the platforms like specifically ServiceNow and of course Salesforce, which is the gorilla there from an ISV perspective and bringing products that extend that platform or those platforms to market? Look, I don't have any brilliant insights other than, and again, I wish of all the ecosystems, I know ServiceNow the worst, right? I know, I know a lot about Shopify now. I know a fair amount of Salesforce. I've been in it. I know the least about ServiceNow, but there's huge power laws. There's at least 10 vendors in these ecosystems that can build massive businesses. Where it gets confusing is when you look at all the folks out there, right? They can't all— there's power laws. And let's take a look. I don't know ServiceNow as well, but let's take a look at the Shopify ecosystem because they all have similar power laws. Okay. So Shopify, there's thousands and thousands of Shopify apps. Okay. Number one is Klaviyo, which we talked about. You can research Klaviyo. They're the only SaaS IPO of the last two years. The only SaaS IPO since HashiCorp in December of 2021. Klaviyo is coming up on a billion in ARR, growing 50% and profitable. Okay, that's number one. So, so let's call them 50, $800 million ARR. And Klaviyo is Shopify for marketing. Okay. There are about 10 Shopify apps that have broken out. Okay. I'm going to guess the 10th is a company called Gorgeous, which I'm an investor in, and we've, we've highlighted. That's Shopify for contact center. Okay, but it's 10th. Okay. And they just published their revenue last week, so I can share it. They just crossed $50 million ARR. So number 1 is at $800 million. Number 10 is at $50 million, right? Growing just as quickly. Right. And then number 100 probably gets steak knives. Maybe even number 20 gets steak knives because if number 1 is at $800 million, number 10 is at $50 million, what's number 20 at? $10 million. Right. What's number 100 at? You know, you don't even get the steak knives if you're 100th on the Shopify list. You might get fired. Right. Not literally, but there might not be enough oxygen, enough revenue, right? That's the way it was when I was in the AppExchange ecosystem and Salesforce. That's the way it is in Shopify today. And so when you look at these ecosystems, you, you gotta do one of two things. You either, if you're going broad, you gotta be in the top 10, right? Or there's just the attach. The reason is attach rates. Attach rates just aren't high enough, right? You can't access all of the customers. Actually, Klaviyo has an insane attach rate to Shopify. We can talk about why, which is why it's so big. Gorgeous actually doesn't have as high an attach rate because you need Klaviyo in many cases to make Shopify work, right? You need marketing to make it work. You don't actually need support agents to make Shopify work. That's a problem you figure out later. Okay. You figure it out later once you scale. So you don't need to buy it on day one as much as you need to buy Klaviyo. So there's these day one high attach vendors that make these applications blow up and the rest struggle, which. Doesn't mean you shouldn't do them, but it does mean it probably can't be everything for you. It probably can't be your whole banana, right? So those are some, I think those numbers, the $850K in the top 10 of Shopify, and then it falling off a cliff after that, hopefully is pretty insightful. No, thank you very much for that, Jason. Appreciate it. Appreciate it.

Thanks, John. Next up, we have a specific situation question about hiring a VP of sales, I think from Ryan. Ryan, you want to jump on?

Yeah, just hire someone that worked somewhere with a fancy logo, looks good in a tie, and talks the talk. Like, just hire someone that knows all the acronyms and just stop there. They don't need to know the product. Like, a great VP of Sales— every product's the same. You don't really need to understand what the product does or how it works, or you don't need to be able to do a demo yourself or answer any customer questions. You just need to be a buddy. Just a pal customer, because people buy from people, folks. People buy from people. You don't need to know the product. You don't need to know the sales motion. You don't need to know how to build the slides or even how to log into the app you're selling. You're just selling to people. You're with me, Taylor?

We're getting Jason's hot takes.

Everyone— before the SaaStr annual sessions, I usually do fake sessions to start. This is the key lesson on how to— the actual mistake that most founders make hiring a VP of sales, right? I can't tell you even this year how many times, actually, I interviewed— I'll tell you, I think I wrote this on SaaStr. I actually interviewed over 50 VPs of sales this year. Some of them actually for SaaStr itself, because we need one. If anyone really wants this and knows what we're doing, let me know. Other than for a bunch of portfolio companies. And I can't tell you— of those 50, 80% did no research before the call and literally just thought selling's the same. I last sold whatever. I last sold Outreach. I last sold Salesloft or Gong or Klaviyo. I don't need to do any research. It's all the same. Don't hire that person. Okay. If you do nothing else in 2024, do not hire the person that does not profoundly understand the product. The markets are too competitive. Budgets are too tight. More importantly, almost all of us are selling to more stakeholders now. It's not some mid-level person that inbounds with budget. You've got to sell— everyone's talking about, we got to sell to the CFO and the CEO and the VP and the mid-market person. They do not suffer fools. They do not suffer people that do not understand the product. You will lose that deal. To your competitor that knows this industry in and out and how to solve your problems. So, rambly offset to my jokey answer, but ask the question again.

So my question's actually not about the VP of sales hire. I, I've, I've watched enough of y'all's videos. I kind of used y'all's Bible when interviewing a few folks and found a guy that dove straight into the product, got excited about it, was willing to build out the process. So we're right at that, signing contracts for $1 million ARR, have line of sight to $10 in probably 2 years if we stay, can keep the train on the tracks. Where I'm struggling the most, because it's just me until I get somebody on board that built all of this, is that every meeting has 1,000 aha moments in it, 1,000 product opportunities, 1,000 pivots, like, right? Even when we're signing our contract last week for a large enterprise account, they're asking for 50 more things that I never even thought of as a business. And I mean, I signed on to Gong so I can start recording and cataloging it and trying to keep track of it. But what do you recommend for a solo founder that's getting all the gems from the first million in ARR? What do I do to collect all this and not be scared?

So you're at a million, you're closing bigger deals, you just hired a head of sales?

He comes on in March.

Okay. And it sounds like your product's pretty complicated, pretty technical, pretty complicated.

Yes, sir.

Okay. I only have bad news for you. Then I'll give you an example. You don't get— you have to be in every deal. It's too complicated. There's too many questions, right? It's too sophisticated. You will, unless you hire a VP of sales that frankly was an engineer and smarter than you in the industry, which is possible. That's not as dumb as it sounds. There's trade-offs there. It can work. They're going to start asking you questions about battery testing and there, there's no way he or she's going to be able to answer the questions, right? You're with me here, right? You know what's going to happen to that deal if you're not in that call? You lose.

That's been the problem. We've had—

there's a company I invested in that'll go nameless. They hit $20 million last year in a very complicated workflow category, probably not as complicated as what you do, but brutally complicated enterprise workflow. Okay. Brutally complicated. Brought in a seasoned VP of sales there at 20 last year. They'll end this year at 22. You know what happened? The CEO stopped doing the sales calls and they lost 100% of their complicated deals to the 12 competitors. 100%. They lost every single day, including— I got an email yesterday. They lost an $800,000 deal. The CEO wasn't in. They just couldn't— they answered the questions. They could do a pricing table. They could talk about discounts. They could talk about the tagline that's on the website, but this is a product that is complicated, that if it doesn't change the game for your enterprise, it's pointless. And they would lose every deal. It could not be sales-driven on its own. And so the tough lesson I gave to him, and it's already worked, is you gotta be in every deal. It doesn't mean you have to close every deal or open every deal. You have to be in every deal. You have to be answering all those questions. And the only thing that will save you ultimately probably is hiring an incredible head of product that is better than you on the product.

Okay.

Right. Or hiring me once in a while, an incredible head of success or enablement that's a product person too. But that's the only way you're going to get any of your time back. If you leave these deals, I know you're a solo founder. I know you have no time. I know you're hoping for your life back and to spend the weekends at the beach and to go on some vacations, but it's going to get worse when you hire the VP of sales because you don't ever get the time back and you will lose all the deals you're not in. It's just a fact. It doesn't mean you don't need it because you need leverage because you want to close more deals per year. So you need to migrate instead of being the opener, the middler, and the closer, you will spend more time as a middler, but you don't get the time back. That 1,000 hours a year all gets compressed into the middle and you get to back off from the discovery call and the, and the, the follow-up at the end, but you don't get any time back. You don't get 1 hour back.

I'm okay with that.

I know, but most people don't get it. They think they're gonna get it and. The only time this really works, the only time you get time back, and I know I've written about this before, but for folks, the only way you get time back when you hire a VP of sales is if the last product they sold was truly harder to sell. If it's truly, they go into an environment that in every way is easier, right? Then you get some time back because they already did it. They already learned how to sell that tough vertical SaaS or complicated battery SaaS. Like they go somewhere easier, then you get your time back, but Other than that, so that, that it's even tougher as a solo founder. But the last thing I'll say, which maybe isn't the question you're asking as a solo founder, don't forget as you scale and maybe at a million, it's gonna be tough, but, but maybe in the next 2 years and maybe it is your head of product, which helps you, you can find a late co-founder. You can find an almost founder. You can find someone that is crazy enough to care almost as much as you. And you can give her or him more equity and you can give them more and you can do more. And it is not— it is too late to officially find a founder, right? You're at a million. It is not too late to find an ex post facto co-founder, someone to carry the load. And that's what you probably— that's what I think almost every solo founder does. When you look deeper, they're actually— they found someone later that was kind of at that level, right? I mean, literally, I know it sounds off topic, but I just watched this week, there's a video on YouTube with I think that the VP of Design and the VP of Engineering for Tesla, they're doing the Cybertruck with Jay Leno. I never watched Jay Leno, but watch this video because what's interesting about this video isn't that they know the Cybertruck. The VP of Eng and the VP of Design, they're, they're at that level. They're better than— they're so good. They could sell anybody anything. They know everything about this product and they speak with authority. So find two of those for your team. Like wherever Elon found these guys and they each manage 1,000 people, they said, but that's how he gets the leverage, right?

Where do you find— so where do you find that person in the community? I got 5 different of our mentors telling me I need a partner. I need someone to bear the weight. So where do you find that partner?

You know, it's hard. You gotta just meet everybody. I don't, I don't know that business dating services work. I don't know that meeting mediocre people that applied in ATS and can't write a cover letter works. I don't know, but you gotta like meet as many great people as you can. And you gotta ask everyone great, you know, just to introduce you to great people, not necessarily for recruiting. Can you introduce me to the best head of product? You know, can you introduce me to the best marketer? Be passively learning and recruiting. And those people sometimes can get you someone. Build a relationship and do more stuff in person and go to more events. I know it's tiring. I don't know where you're based like this. This stuff is 10 times better in person, even though it's 10 times more work. You don't get to know anybody on a Zoom. You gotta try, right? But you gotta do it. You gotta meet as many of the best people as humanly possible and constantly be asking them for help. Do you know, you know, meet Amelia or Taylor or Jason, meet them in person, spend some time with them. And at the end say, listen, if you can think of anybody you happen to know that could be great at product here, let me know. It may rattle around in their brain next week. One time out of 50, they will get you someone, right? And you gotta do that. The best people get you the best people. And then once in a while you luck out, right? Someone inbounds from your, from your ATS and it works, but the best people know the best people. It's all I can tell you. There's no, there's no magic solution to this, right?