Metrics That Matter in SaaS and Why IPOs Are Back

off with 3 metrics that are underdiscussed, um, on, with, on social media, with venture capitalists, really, with certainly especially with founders. Uh, I've actually got, uh, I'm in the Bay Area this week and have 4 board meetings or investor meetings this week, and everyone talks about ARR and, and, uh, growth and to some extent NPS and others, but we are underdiscussing some metrics that in 2024 especially matter for SaaS executives and founders. So I just wanted to talk about 3 things that I think are important and underdiscussed here. And the first one that I put this together on Saastr in the last week or 2, you can find it on what I think the most important metric in SaaS is today. This is not discussed enough, and I encourage all of you, especially those of you who maybe have seen growth slow over the last year or two, to be laser-focused on this. I see very few founders put net new customer count as their top KPI. Everyone talks about revenue growth. Everyone talks about revenue growth. And look, your first year, your first 2 years, you don't, you know, you don't have any customers to renew at first. You're adding new logos at, on a percentage basis at high rates. So It does. There's no real goal for net new customer growth, but what we are seeing today is that anyone with any scale, even from $4 to $5 million ARR to $4 to $5 billion, obviously that's, that's a wide range. I am seeing folks whose new customer growth is anemic, is anemic. And if you look at most of the public SaaS companies, you will have seen that in many cases NRR has come down. But if NRR was really high at a Snowflake or a Cloudflare or a HubSpot, it's come down, but it hasn't plummeted to zero. So the top leaders in SaaS and cloud still have triple-digit NRR. They still have triple-digit NRR. And so even if you bring in no new customers, no new customers, you'll still grow. At the bottom of this table is sort of the worst offenders. And again, these are great companies, so I don't mean to pick on anybody. They're all, these are all top. This is the, they're all in the NBA. It's like picking on somebody because they're not LeBron James and realistically, but this is the world we play in, right? We're all, we're all kind of in the NBA of SaaS. So probably the biggest offender at the bottom is Fastly. And Fastly is pretty, is a pretty enterprise CDN at $500 million in revenue. It still gets more money out of its customers as they route more content through their network, but they're only growing customers 1%. 1%. So they can look, it's not, doesn't look all bad if you, if you, if you, if you breeze through the numbers, revenue growth up 18%, that's not great, but it's okay at $500 million. But only 1%. PagerDuty similarly has done a big tilt upmarket to the enterprise. If folks have been around for a while, you remember when PagerDuty was like a grab-and-go app for tech folks and SMBs. Now it's very, very, very enterprise. And that's worked because they're growing, their NRR is high enough that they are growing, still growing 60%, but only 1% customer count. And I just see too many founders when times are more challenging, even when growth is just okay but not great, hiding from this. They're hiding from this. Oh, we grew 48%, um, th— this last year. That's great. But if your new customers didn't grow at least half of that, if it's not at least half of your top line revenue growth, your future is not secure. Your future is not secure. You're hiding an NRR. So you have to tweak that ratio based on how enterprise or SMB you are. But roughly, roughly speaking, if your new customer growth is not growing half of your of your top line, your revenue growth, you are shrinking in relevance. You are shrinking in market share and your future is at risk, is at risk. And I would much rather, and we've really made this mistake even worse the last 18 to 24 months where we try and wring every dollar out of the customer base. We try and force people to renew early. We jam price increases up. All that stuff is financial engineering and it might work for a year. But jamming your customers to pay more, that doesn't increase your net new customer count, does it? It doesn't. It doesn't increase the number of new customers. If you have a great team, and we can talk about this in the AMA after, but if you have a great team, they will over time figure out how to drive up your deal size, how to drive up your ACV, how to drive up all of these pieces. As long as you're growing your customer count, your future is assured. Your future is assured. And that's why, you know, of this list, Really, I would say the most impressive are the top 3. Sprout Social, which a lot of folks don't talk about in the social media space. Cloudflare, which is, I think, has the highest multiple revenue multiple of any public SaaS or cloud company. And HubSpot. For those of you who think you've exhausted your market, for those of you who think you're running out of customers to sell to, HubSpot has 205,000 customers and is still growing its new customer count 23%. It's still going to add 50,000 customers a year. So this is your job. This is your job. And I know especially if you have investors and team members, yes, I, of course, revenue growth at the end of the day is, is what matters for a while in SaaS. And then as we'll talk about next, revenue growth and profitability ultimately matter. But your future is your customers, is growing your customer count. So I would challenge you in your team meetings and your investor meetings, whatever. I would make this your number, your first slide. This, I think, is the core health of your company. Now, if you're under some pressure for renewals or under some pressure for pricing, so be it. But if customers aren't growing, and again, that to me, that's the canary in the coal mine, especially if your NRR is decent. And I just, I see way too much discussion about other metrics and not enough about if we're growing our customer base. The next less discussed metric I wanted to just touch on, I've really only got 3 and then we'll open up for questions. And this chart's a little complicated. You don't have to read it, but I'll explain it to you. And I'll show you some examples next is growth versus efficiency. And the single biggest mistake, error, confusion that I hear from founders today, founders in general, founders that are venture-backed, founders that are bootstrapped, angels that have raised a little bit of money, wherever you are, is that this is the era of profitability. It's not. It's not. It is not. Profitability is not your key to success. What has changed is efficiency. You have to be more efficient. You can't go public not growing. Too many startups are not growing or growing 10%, 15%, 20%, but hooray, we're break-even. You know what? It actually turns out to be pretty efficient if you don't close any customers. You don't have to pay the sales team that much. Your marketing costs go down. It's actually, it's actually fairly easy to be efficient if you have a few million or more in revenue and you don't grow at all. You often actually can be cash flow positive. It's really not that hard. Just fire the whole sales and marketing team or don't do any of it. That's not what it's all about. What has changed— and this is what confuses social media advice— it's all terrible. What has changed is now you have to do both. You have to both grow and you ultimately have to be profitable at scale. But profitability is not enough. And I'm going to show you an example next that will be more helpful on this slide. But both Bessemer and Meritech, you can— I'll put them up on Saastr. In a week or two, but they both did their own overly complicated analysis of this. This is Bessemer's, but they both come down to the same conclusion. Looking at all the public SaaS companies and cloud companies in 2021, all that mattered was growth. As we know, all that mattered was growth in 2021. No one— forget about startups and unicorns. No one actually cared if public SaaS companies were even profitable. Literally no one cared in 2021. In 2024, profitability matters, but growth is twice as important. It's twice as important. So let that be your guiding light. Your guiding principle is this ratio of growth to profitability. You can calculate it however you want. You don't have this rule of X that Bessemer did. I love it, but it's like super complicated. It's a little bit too nerdy unless you're like pre-IPO. But growth is twice as important as profitability. So track both, but profitability is not the goal. It is an end state ultimately that you need to get to. The goal is to grow almost as fast as we did in 2021, but without burning all the cash. It's hard, but that's the real goal. We don't get a pass on growth because you're profitable. You don't get a pass on growth because your cash flow break even. You don't— it doesn't get you anywhere. So let me show you— oh, sorry, this slide. This is an interesting example I pulled up. There's a series on SaaStr called Five Interesting Learnings. It publishes every Wednesday. If you don't read it, you should. I think it's pretty good. I write it though, so I guess I'm biased, but we look we do, we look at all the complicated metrics from a leading public company and we break it down to just 5, 5-ish things that actually matter for founders. And I pulled up 3 of the latest ones, HubSpot, Viva, and Dropbox. And you know what's interesting? Viva, you might not have heard of, um, Viva is the, is the probably the largest vertical SaaS company. It is CRM and a little bit more, but CRM for, um, for, for life sciences. It is for life science. In fact, Viva was founded by the VP of Engineering, CTO at Salesforce, who wanted to build a Salesforce for pharma, and it ended up becoming this huge platform, CRM platform for life sciences verticals. Anyhow, convergent evolution, HubSpot for SMBs, Viva, everyone's a million to $10 million contract, and Dropbox is at the edge of consumer, but they're all $2.5 billion in ARR today. They're all doing $2.5 billion in revenue, but what they're worth and how they're doing it is very different. Let's look at HubSpot and Viva first. It's super interesting. They're actually both worth $33 billion. This is both in the top 10%. These are top decile. These are the LeBron James and Steph Currys of SaaS, HubSpot and Viva. HubSpot's growing twice as fast at 24% with 17% profit margin. 17% of each dollar goes into profit, non-GAAP profit, but profit. And so that combination, and add them together, 24 and 17 is 41. This is the so-called rule of 40. They're worth $33 billion. That's 13x ARR, after you take out the cash. Pretty darn good. Now Veeva, this is the line where if you fall below this line, not as a startup, but as a public company, you become interesting. But Veeva's just above it. Their growth is barely in the growth stage. It's in the double digits. It's 12% at $2.5 billion, although they are guiding to 15% next year. So importantly, they're telling Wall Street, hey, we're going to accelerate rather than decelerate. Almost 40% margins, almost 40 cents of every dollar comes in Um, is goes to the bottom line. So Viva's actually sitting on $4 billion of cash. Viva only raised $8 million in capital before its IPO. It hasn't spent anything. It's built up $4 billion in cash. It's so efficient. And add 12 and 39, you get to 51. So that's, that's wildly efficient. Um, and it trades at the same, uh, as HubSpot. Um, a little, a tiny bit lower when you back out the cash. So, um, both of them profitable, right? Or depending on your definition, both of them have high margins, but Viva's margins are insane, which can kind of make up for good but not great growth. HubSpot is very, very, very good growth at $2.5 billion, and it still has to be profitable. Dropbox, $2.5 billion, growing 6%. That's not a growth company anymore, is it? It's fallen to the single digit. It has 33% margins. It generates almost a billion of cash, but Wall Street doesn't care. Back out all of its cash, it's only trading at 2x ARR, a sixth, a sixth the valuation of HubSpot and Viva. So Dropbox is the example of, hey, a tiny bit of growth and tons of cash is not good enough. No matter what you read on Twitter, no matter what everyone says, like the mantra is getting profitable. It's not the reason people are all, especially VCs, are saying get profitable is because they're worried their portfolio company is going to run out of money. There's no more money to go into the engine, so they're telling them to get profitable. But it's necessary but not sufficient. Necessary but not sufficient. So super interesting set of case studies. Take some more time studying this if this doesn't make intuitive sense to you. But this is the world we're living in today. You gotta grow and you gotta be profitable. And I think this is under— the combination is underdiscussed and that growth is twice as important as profitability, as we can see when we compare Veeva and Dropbox, right? It's just Veeva is $33 billion, and Dropbox is $8 billion, back out its cash, only 2x AR. No one wants to be worth 2x AR, folks, especially after all that work and getting to over $2 billion in revenue. So related to that, one last slide, and this one frankly is slightly discouraging, but I'm going to show it anyway because we're among friends. This is a debate. This is much debated among VCs today. So I'm going to take out the debate and just kind of summarize the facts. What does it take to go public today? What does it take to go public? Because at some point, if you're founders, look, most of us aren't going to go IPO, most of us, but it's good to know, but at least it's good to know where to skate the puck to, right? So, so that if, if you're a little bit on that path, someone might buy you for $10 million, $50 million, $100 million, $500 million, a billion. What does it look like? What do you ultimately have to be, even if you're not there today, what do you have to build to? And. You know, when I started in SaaS, the bar was kind of $100 million in revenue, $100 million-ish growing, maybe 50%. That's kind of where HubSpot and Box looked like as they IPO'd, you know, a decade ago as they came to the first couple SaaS annuals. The bar and everything's gone up for a variety of reasons. It's not $100 million or $150 million, and no one knows what the bar is today to IPO per se. But what we can look at is there have only been 2 SaaS IPOs since the crash of December of 2021. There's only been 2. In fact, there's only been 1.5 because Rubrik is in process of going IPO. They'll IPO shortly, but they actually haven't gone out, at least as of today. What does it look like? This is a, it's a big bar. So Klaviyo IPO'd late last year. If you don't know Klaviyo, we have a great interview with the CEO on SaaS Tour. Look at it. It's one of my favorites. Klaviyo owns marketing for e-commerce. It owns marketing for e-commerce. If you're not in e-commerce, you've never heard of Klaviyo. You use HubSpot or other apps. Sorry, can we mute that guy? We got it? Okay, good. Sorry.

Sorry, Jason.

Klaviyo owns marketing. About almost 70% of everyone on Shopify uses Klaviyo. It's insane. It's an insane, it's one of the highest partner attaches there is. Is Klaviyo to Shopify. And a beloved app, literally, I haven't seen a product that folks love more for marketing automation. IPO'd at the end of last year after that drought, like the 2-year drought, $600 million in ARR growing 57%, 57%, right? And profitable, 57%, $600 million. It's only worth $6 billion. It's only worth 10 times that. All that work, it's only worth 10 times that. Rubrik's the next one. Rubrik's, um, AR is really confusing. You can read, we put it up last week on SaaS on 5 Interesting Learnings. It's really confusing because they went from a, from sort of a hardware on-prem to SaaS model. And frankly, I think they flatter their metrics a little bit by confusing them, but put that aside for purposes of today. Let's simplify it. Rubrik's going public at about $780 million in revenue, growing maybe 47%. And then again, it might be a little less. Because the metrics are confusing, but let's call it the most optimistic version, 47%. And we don't know what they're going to trade at, but it looks like about $6 billion to $7 billion. So this is the bar. This is the bar. And I don't think this is bad, but I think most startups today are living in a bubble, in a glass house. And I'm not criticizing, I actually think it's a good thing. It is a good thing, but way too many startups are getting venture funded. Way too much is happening for companies that are good companies, but have no hope of— these are high bars growing more than 50%, not where you are today, but it's $600 million and more. It probably, if you back into what is the equivalent of growing 57% at $600 million, for most of you today, that might be tripling this year, quadrupling, quintupling. That's probably what it should take to raise venture capital, go through this cycle, do all this stuff. And that's just to trade at 10 times revenue. So if you've raised any capital at 10 times revenue or more, you're kind of living in a bubble. You're kind of living in a glass house and do it, like hide from it, hide from the real world. Like it's like living at home with mom and dad for a while. If your room's nice, like stay as long as you can. Don't be in a rush to get out of mom and dad's house if it's really nice. And, and, and, and the, and the, sorry, can you guys hear me?

Yeah, we can still hear.

Sorry, I lost that background. Don't be in a rush to get outta mom and dad's house if the room is nice and they have a car for you and like they pay for your Apple Pay, like maybe stay at home until, you know, you're 22, 25, 26. I don't know, maybe this is a bad analogy, but I, I don't, I don't mean to, to, but, but you know, there's, there's an argument to, to, to staying in a bubble where everything's great because the real world is tough now. Now, maybe we'll see. There's— Meritech had a good analysis saying they think there'll be plenty of IPOs at $200 million, $300 million, but even that's a lot, right? Even that's a lot. But if you want the tough— my tough concern, my tough worry today of underdiscussed is what is this bar and how do we get to it? And I know quite a few SaaS companies that are in the $150 to $200 million ARR range. Okay. Because I got to know the founders or even invested in them, all different reasons, you know, over, over the last decade. Many are now at $150, $200 million or so, $250 million, in that range. It's a good range, but the growth isn't at this level. The growth isn't at this level. Now, you can blame macro and this and that, but macro isn't stopping Rubrik. Macro isn't stopping Klaviyo. There's good macros too out there. They're not all bad macros. And I, I don't mean to be discouraging, but as, as founders, even if you don't Maybe you don't show the slide to your teams. Maybe you just keep this quietly among yourselves and only talk about it a quarter. But understand that as hard as it is to do what you're doing today, you may actually have to do even better. The bar is— the bar to the IPO window is open, but the bar is pretty tough today, guys. And so those are just a tough fact to be aware of. When you're trying to understand it. So anyhow, to summarize, and then I'll break, let's take questions. But to summarize, track your net new customers after churn. Track this as your, to me, the North Star metric. A team will fix everything. You'll, you'll figure out more products for them. You'll figure out how to drive your, your deal size up. You'll figure out how to, to do all these things if you have happy customers and a good team. But if you're not growing your new customer count, it's trouble. So especially invest in your long tail. Don't give up on your smaller customers. Don't give up on your champions. 'cause they can grow big. Two, profitability isn't everything. Growth still matters twice as much. You just have to do both. It's harder. And three, just quietly be aware of the bar to IPO. So how all that cascades back to your stage, at least you're self-aware of it. So thanks for that for everybody. And I'll open up to any, it doesn't have to be on this topic. Anything anybody wants to ask, we can do until we run outta time.

Amazing. Thank you, Jason. We do have a couple questions that came through specifically for your slides, so I just want to go through and hit those first. Um, Giovanna, on your, on slide 2, Jason, where you were going over periods of growth for all those different companies, what she was asking is this specifically for Q1 2024, or was that your, um, the whole year of 2023?

For the customer growth? Uh, well, it's all annualized. I get that that's confusing. These are all— these are all— those are all annual growth numbers. It's a good question. Could be confusing. It's all annual growth. Great.

Um, and then, um, uh, AJ, you have a question, um, for Jason. I can bring you up, or you can just go off mute.

Can you hear me?

Yeah, we can hear you.

Um, Jason, uh, good, good reminder and anchoring on the, uh, on the growth. And I love the, the anchoring of the growth versus the Rule of 40. A lot of people get caught up in it, so I think it's a really good reminder that growth is, uh, growth is still king. Uh, question for you on the growth specifically. So I'm seeing a lot of insistence on sales and marketing efficiencies in the, in the startup world, and especially smaller and you don't have the brand like, you know, like a Klaviyo or a Snowflake or anyone like that. When you— what kind of sales and marketing efficiency should we expect given that right now I'm seeing a lot of chatter on social media that the overall buying environment has changed drastically because of no more zero interest, right?

Zero interest rate.

So customers are buying in a much more slower manner. They're more cautious. They, they make you go through many, many hoops. In that environment, what kind of sales and marketing efficiency metrics should we expect? Has there been a calibration? And so—

Sure. Well, let me step back to two things. One, a meta comment, and then we answer your question about sales and marketing efficiency. I would say in my career in SaaS, which is going back quite a while now, Folks that are saying that on social media are missing the point. They're missing the point. Um, sales is much harder than 2021. It is exactly as hard as it always used to be. It is exactly as hard as it always used to be. How it used to be until the second half of 2020 is almost every company had enough apps. No one was looking for, on their own, to spend even more. Like if you, if they had a real need, If you just, or you created radical efficiency in the organization, there was always budget, but no one was trying to add double their app stack. People doubled the number of apps they had in the boom. That will never, that if you think about it for a moment, that was insane. That could never last forever. You can't go from 100 apps to 200 to 400 to 800 to 1,600 to 3,200 to 6,400, and then they all double their pricing. I mean, there's not enough, the global, the global, global, uh, domestic product. The global world product doesn't account. There's not enough money. So 2021 made no sense in terms of the budgeting, and therefore the sales and marketing practices in 2021 made no sense. They weren't crazy. They were just attuned to buying patterns that we've never seen before and may never see again for a decade or more. Okay. So, and this is— then I'm going to answer your question next. This, and this is the toughest thing. To say, but the folks on social media that have been around and that are complaining about how hard the market is and how impossible it is, most of them you can't hire. They're broken. The easier— it was never easy, but the easier times lasted too long. They lasted from the summer of 2020 until about Q1, Q2 of 2022. Even as the public markets crashed in 2021, people kept buying. Actually, the growth was pretty good. Until Q2, Q3 of 2022. So there was a whole new generation of kids out of school and senior folks who got promoted or whatever, who don't even know what it was like. It was over 2 years of buying that wasn't easy, but so much easier than we've ever seen that they're unable to work or unwilling, not unable, unwilling to work in the current environment. They're unwilling. They're blaming the world. They're blaming macro factors. They're blaming customers, but it's supposed to be hard. We all have enough software. Like we, we all already have a CRM and a marketing solution and an ERP, and half of this stuff can be done in Office. Like Excel's a pretty good piece of software. Google Sheets is great. Google Sheets is like free. Like Canva's almost free. We don't need anything. The bar was always supposed to be insanely high for, for For software, you had to change the world. And there was so much money invested on just on enablement in the boom that we lost track that you have to be utterly disruptive to succeed in business software, right? If you do, there's a lot of markets. So I've written this before and I know it's tough to say, but I was especially— I believe there's genuinely a lost generation. There is a generation of folks that grew up in 2020 through, through mid-2022. Half of them may no longer be willing to work in SaaS companies today. And as executives, whoever's here, founders, CEOs, CROs, CMOs, don't hire. I'm not, I'm not judging. I'm judging them a little bit, but don't judge them too much. Just don't hire them. They're broken. They cannot work in this world. They cannot work with a smaller team. They cannot work with a smaller budget. They cannot work with. With the level of efficiency we have today. It's broken. Okay, so let's step back. So let me ask you a question of sales and marketing vision, and we can, then we can back into it. The reality is if you're comparing your, your company to 2 years ago, you have to be twice as efficient. That's just the math. That's just the math. And I wrote it up on SaaStr a little while ago in terms of revenue per employee, but the average public company has over 300,000 in revenue per employee in 2021. It was just over $100,000. So do quick math in your head. That means the average public SaaS company is twice as efficient, and it's gotta ripple through startups too. You've gotta be just twice as efficient. It's just the facts. And is there gonna be some trade-off in growth? Yeah, that's kind of the slide we looked at, right? Snowflake is not growing at the insane rate it was. HubSpot's growth is great, but down. There's some trade-off, there's some trade-off, but you gotta hit it. So The final point I'll make, and I know it's not a full answer to your question, but then we can take the next one. How do you budget this? How do you budget this? And we have to go back to what we always used to do. Even the best companies did this until maybe 2019 or so when capital got easier. You have to do, at the end of the day, zero burn, zero cost budgeting. You just have to say, look guys, this is how much money we have this year. It's all we got. And we got to— let's figure out what's the absolute best we can do with our budget. And that, that's how well you do. That's how well you do. And we had— the truth is we had tons of sales folks that were marginally efficient in 2021, and we ran marketing campaigns that maybe worked in 2021 and don't work today. So you just can't do them. You just can't do them. It's not that complicated. And so Um, and I'll go even further and then I'll break. I think it's funny, I just had, um, I'll say finally one last point. Um, I don't think that in most startups, even your payback time, your magic number, um, none of that matters if you're tracking the top and the bottom line. I was at a board meeting yesterday, I of a startup I invested in very early, $5K in revenue. They're just crossed $60 million. And their CAC payback time is 26 months. So that's not fast, is it? But they're breakeven at $60 million. They're breakeven. They're not even burning any cash. So does it matter? The growth is hitting the plan and they're breakeven. So like these CAC metrics, these payback metrics, all these numbers, they're all kind of, they're good. They're important. But back in the old days, they were devised by a lot of VCs and Byron Deeter at Bessemer did a ton of this in the early days so that VCs could understand how to invest in SaaS companies. If I'm gonna give these guys $10 million, $20 million, $40 million, I want it to be a, a, a, an engine. I want it to be a, a flywheel and how much am I gonna get out of it? So, so these payback metrics are really important for investing. I think for startups, just the bottom line matters. So do zero-cost budgeting. How much can I spend this year? How many can I hire? And then lastly, I know I'm— there's a lot of points, but I think they're important. If you have a good sales team and a good marketing team, they will respond. They will respond. A great sales team is almost always accretive. They almost always bring in more money than they take out. And marketers will focus. They won't just hide and spend nothing. They will focus their spend on what works and they will rise to the occasion and they will work within the budget they have. And that's how you do it. So anyhow, zero cost budgeting, it's the best we can do. It's back to reality. So thanks for the question.

Thanks, Jason. Okay, we have a couple others that I'm going to ask for folks. So from Paul, when it comes to go-to-market efficiency, what do you think are the most meaningful leading indicator metrics to manage? New revenue per head, sales velocity, or some other metric?

Ask the question again, Taylor.

Yeah. When it comes to go-to-market efficiency, what do you think are the most meaningful leading indicator metrics to manage towards?

I don't think anything's changed. I think, you know, I just did a great, a great one. It's really worth watching. I did a great podcast, video podcast with the CMOs of HubSpot and Zapier who used to work together at HubSpot. They have a new pod called Against the Grain, and it was like all about marketing. This one was pretty good. I think you guys would enjoy it if you watch it for marketing. And, you know, HubSpot, it's the biggest. Zapier's, you know, 9 figures but smaller. But anyhow, I think the whole point of the conversation was at the end of the day, there's too much noise in marketing, and marketing's job is to accelerate top of funnel. So what matters? It matters. First of all, you have to figure out what type of marketer do you have, assuming it's not you as the founder. What do you, what are you good at? Are you good at generating leads, opportunities? What piece of the funnel you have? And just focus your energy there on growing that at least 20% a quarter if you can grow whatever layer of the funnel that marketer's good at. Most marketers are only good at one or two things. So asking them to do motions they don't know how to do, asking you know, a digital marketer to do enterprise stuff and field events and webinars is not gonna work too good. Asking an enterprise field marketer to spool up Facebook ads, it's not gonna, it's not gonna work too good. So figure out what level of the pipe they're optimal at, measure it consistently and just drive it up 20%. It's just, that's just the goal. It's just that simple.

Helpful. I just dropped that link for everyone too. It's a really great interview. So Jason, thank you for sharing that one. Another question from Sean, uh, given the current state of IPO markets, can you comment on the secondary strip sales going on in VC funds? And does this diminish the value of IPO to generate returns to LPs?

No, it's a pretty, pretty niche topic. And frankly, I'm not a, I'm not a total expert on it. Um, I think there's a larger meta topic, which is that it's super niche, but I can talk about it just for a minute, is do secondary options— then I'll tell you what secondary options are for both founders and VCs— do they take some stress out of the system? So, you know, there've been— hopefully Rubrik will, will have a great IPO soon, but even include Rubrik, there's only been 2 IPOs since December 2021. The last, last one during the boom was HashiCorp, which may sell to IPO at a relatively low price actually. And then nothing. Crickets. Crickets from HashiCorp in December 2021 until Klaviyo, I think in October of 2023. That's almost 2 years. Rubrik's the third. I mean, this is the lowest IPO count in our career since their worst SaaS IPOs is crickets. And so it puts pressure on the system. It puts pressure on employees not getting liquidity, right? And it puts, that's obvious to some extent. And it puts a subtle pressure on VCs. VC funds, they used to last 10 years. They typically last closer to 14 years now, but there's still a lot of pressure because a good SaaS IPO can take 10, 12 years and funds can run out of time and not generate liquidity. So there's all different ways to get secondaries. The good news is the very best ones, there's still a lot of secondary. Uh, Rippling just did one. If you look at the press release, it said they raised $600 and something million. They didn't actually do it. I think they only raised like $100 or $200 million for the company, and I think $500 or $600 million went into a tender offer for employees and old and early investors. So the initial employees, initial investors were able to sell at $16 billion the last week or two at Rippling. Stripe has done this regularly. Other leaders do it. And so, um, that has helped. Now, it's, it's only there for the best of the best. It, it, it's, uh, it not— and, and it doesn't actually have to be Stripe or Rippling. Anyone that's sort of approaching a unicorn stage, which is still hard, don't get me wrong, but it's not at the Stripe and Rippling level. If there's extra money in the deal, there'll often be a small tender offer or small buyout. I have a portfolio company that just raised two, one that raised at $500 million, one that raised at $300-something million. They both did small little tender offers for employees. So that definitely helps as it takes longer. VCs, it's tougher. They are looking for it. I'm not a total expert in all the strip sales and secondary, You can see there was some press this week on Shasta. Had an old, their last fund, they tried to create a continuity fund that could continue longer than those 10 to 14 years because it takes so long. And actually their LPs voted it down because there was a discount involved in it. But everyone's going to be working on this. I think that it's limited, but I'm hopeful. And then the third thing that hopefully continues to bridge some of the gap is the private equity firms. Vista just raised another $20 billion, mainly to buy SaaS companies. You know, over the last couple years, even as things have gotten tougher, in fact, PE has been very active. They've bought public companies like Zendesk and Qualtrics and others. But traditionally, there has, you know, for at least since Marketo was bought by Vista, that kind of ignited an engine in PE to buy lots of folks at scale. So, That has slowed down a bit, but the money is still there. So I'm hopeful that all these combinations of PE, some of this VC stuff, which I think is actually very limited, and tender offers and stuff bridge some of this gap of, of limited IPOs. I think what at the end of the day, 2025, time will tell, because going back to an earlier point, there are a ton of SaaS companies north of $100 million with mediocre growth. With mediocre growth. No one's going to come in and do a Stripe or Rippling tender offer there. Okay, Rippling's at $350 million in ARR, burning a ton but growing very quickly. No one's going to go into someone at $100 million ARR growing 15% and do a massive tender offer and pay out the VCs and employees. But will VC— will the private equity firms, will the Tamo Bravos and the Vistas, and to a much smaller extent Insights and others, will they step up and buy these companies and mash them together, buy a bunch of folks at $100 million ARR, mash them together to $300 or $400 million and try and take them public. The combination of Salesloft and Drift, which you may have seen, is probably an attempt to do just that, right? I don't have any of the details. I was a seed investor in Salesloft, but I'm long since out of the loop. But, you know, if— let's imagine Salesloft is like $180 today and Drift was at $100, then their growth is in the teens. But you combine them together and they're profitable, like you might be able to go public next year. We'll wait and see. But if those folks that are at $100-ish 150 with slow growth. If those all end up having liquidity through PE or other combin— or just M&A, I think life will be good at a meta level around everything you said, from VC to employees. If all those folks at $100 million with slow growth have no options next year in 2025, then I think it's going to suck. We're waiting, we're waiting to see. So thanks for the question.

Jason M. Lemkin, one kind of final IPO-ish related question, and then we'll move on to some other metric ones. Would just love to hear your take on when we're talking about alternatives, any thoughts on if we're going to see the trend of SPAC come back?

The S in SPAC stood for stupid. Stupid purpose, rip-off people vehicles. Not only will it not come back, but I don't want to spend any time on this. If you look back, there were almost no SaaS SPACs. There weren't. And because SPACs had to be like Donald Trump's company with no revenue or Fisker that's about to go bankrupt, things with no revenue and lots of hype were SPACs. SaaS companies actually looked at SPACs in the peak. I remember during lockdown, people were looking at them as like, hey man, this seems so easy. Why do a regular IPO if I can just SPAC? But there was really no, The hype machine, the bordering on fraud machine doesn't fit revenue-producing companies. So I don't even think it matters, but I don't see that coming back there. It's just the performance is just mostly abysmal, but it doesn't help SaaS. It didn't end up helping SaaS. I can't remember. I think the only one that was even vaguely SaaS-y was Getty Images. And I bet if we look it up, we're not going to be thrilled with how that SPAC performed, but you never hear about it. Well, it's at $1.6 billion, so it worked, but we wrote it up on SaaS for a long time ago, but that was the only one I can think of.

Yeah. Yeah. I knew you'd have an interesting take on that one. Okay, well, let's move on from— thank everyone for amazing questions about IPO stuff. I, we do have quite a few about metrics specifically, so I'm gonna turn it over. Giovanna, you had a question about metrics, so I'm gonna bring you up to ask a question live.

Thank you.

Yes.

So Jason, in terms of efficiency, what do you think should be the expected return on investment on your marketing spend, number one, uh, example, 2x, 3x, and on your sales team, uh, as an example, 5x on OTE, or, or what is what you see as the best, um, ROI? Yep. I think those, you'll, you'll see those metrics. I think they're not practical for startups. Let me step back for a minute. Um, Number one is your bottom line. Manage to your bottom line. Okay? You have to have a budget. You have to start from the budget, not the metrics. But let's step back for a minute. Let's talk about marketing efficiency and let's talk about sales efficiency. Marketing efficiency. People come to the dumbest conclusions, the worst conclusions. Okay, folks, we literally had— so we have about 200 sponsors at SaaStr Annual each year and we learn— I actually keep kind of fresh in some of, some of the zeitgeist just talking to some of them. We had one last year a startup, they're a startup, um, they're doing $15 million, growing about 60%, and they have budget, and they're not renewing for SaaS or annual this year, which happens. It's a marketing spend, okay? It happens. It's okay. And, but we asked them, why are you not renewing? They said, we only made about 3x our money. That's great. Their target, but they said our target's gone up to 10x this year. Yeah. Here's the thing, in startups, 1x is good enough. You're trying to grow. You're trying to put points on the board. You're not Dropbox growing 6% a year. You're trying to put— the way marketing works in, in startups is you have to be careful to measure where the money is going. Anything that gets you a customer is worth it, especially what if that customer stays 10 years?

Yeah, but what about—

what if you, what if you get that customer and what if you don't get it and your competitor gets it and you never get it back? Okay, so point 2, what we forget is because it doesn't feel this way in the early days. Okay. But as you get— you don't have to be HubSpot stage. Even as you get to a few million in revenue, you— I've talked many times over the years about a mini brand. Okay. People will start to hear about you. And what will happen as you cross just a couple million in revenue is you will get at least some zero-cost leads. You will get at least some people that say, I heard about you, or I used you at my last company, right? Or I saw you on Twitter. That the cost of that lead will be very low and it may even be zero depending on how you measure it. Okay. You gotta blend that with your paid. And ultimately, ultimately all the top software companies, the number one source of customers is word of mouth. The real job of marketing is to, is to accelerate word of mouth. That's the real job of marketing. So my point is just 1x is enough. And if you, let's say you get half, let's say you get half your marketing initiatives get you 1x and half your customers cost zero because they came from word of mouth or virality, your marketing costs pretty low, right? So rambly way, and then you can ask a follow-up, but let me then answer your sales question. Rambly way is I get that if you're at scale and you're deploying $50 million, $100 million, $200 million, you've gotta get every cell right. And you have to know the ROI of every Facebook ad and every Insta post and everything. But what actually I find almost all SaaS marketers get wrong is they just don't slow it down and say, hey, what performs at all? What perform— most stuff won't work at all. You'll dump a bunch of money into some partnership. You'll bunch of dump of money into a channel. You'll dump a bunch of money into digital and it won't work at all. Like you won't get one customer. Don't like take a pause on that until you have new DNA in the company. But if you have any ROI, what you wanna actually do is not do less of it. You wanna do more of it and just get better and better and better and better. right? Get better and better and better. And so my summary, the way I summarize all of this is SaaS marketing, do anything that works, anything that gets you customers, do more of it as much as you can, as much as you know how. You will often run out of ideas on how to deploy more capital into that channel rather than the opposite. So anything that performs usually is a gift from heavens, especially if your ACV is high enough. If your ACV is in the, especially if it's in the 5 figures, On the sales one, here's the thing, like the, those now, the class, there's, we lost, we kind of lost a little bit of the picture in 2021, but for all of eternity in software, there have been, actually used to be even higher in the old days of like true enterprise software, but we've had these 3x, 4x, 5x multiples, right? What do sales folks need to bring in as a multiple of their earnings? It's pretty much always been 3x for SMBs, 4x for mid-market, and 5x for enterprise. That's pretty much what it has been. Do some folks do much better? Yeah, I've invested in 2 SMB folks that are well north of 5x. It's possible, but even when they do, usually as you scale, it's hard to maintain. It's hard to maintain as you hire more reps and enter new categories. The folks that are at that 6x, 10x for SMB usually isn't it's not sustainable infinitely. So those 3x, 4x, 5x are— remain the right yardsticks. It's just like the marketing thing. As leaders, as founders, that's how you should build your spreadsheet. That's how you should hire your team. But slow it down and understand, is it being measured properly? And is that rep really profitable? And are the leads going to the right people? And figure out what is the most you can do without breaking the team. The worst, the most destructive, for sure. The most destructive thing we're seeing across startups today, a lot of folks know this, um, is too low a quota attainment. It's just, it's just a cancer on the sales team when you need— no, forget about all the metrics out there. You need the majority of your sales team hitting quota or people don't feel good. They, they get negative. They, they start to not believe. They, They start to believe the competition's better than them. They start to believe they can't do it. You need the majority, you need 1 or 2 folks making a ton of money on a bigger sales team, and you need the majority at least hitting quota. And so 3x, 4x, 5x is you gotta get there. That's efficiency. You have to skate there. But if it's harder for you and there's stress in the system and you can cut that back a bit, still meet your financial goals, your bottom line goals, but get half the team over into quota, I would do that. I would do 2x, 3x, 4x, or whatever. If I had the means and everyone was hitting 50% quota, you'll end up making more money than if 30— there's just a downward spiral when 20 or 30% of folks are hitting quota. It's just people quit, they get negative, and you find that when people lose faith in sales, right, they, it just, they just get, they get worse and worse. So it becomes this, this, this self-defeating prophecy. So thanks for the questions. Thank you, Jason. Yeah.

Thank you, Giamanna. Next up, Francis, if you're still around, we're going to pop you up for your question that you dropped in earlier.

Yeah. Thanks, Jason, for the session. So my question is, do you still see a higher growth rate in the usage-based model than the user-based model? Well, I'll answer the question simply, but then let me step back a bit. This is something that when a lot of the usage-based stuff exploded and it was never that simple, right? The Snowflakes and Twilios and others were never really usage-based. They always ended up having commitments, right, at scale, right? We're seeing that with OpenAPI and others today, right? The only way you can get a decent deal on AI is to make a commit. The prices go down 50 to 90%. If you make a commit. So the stripes out there are with the true variable model are fewer than it looks. Look, if you read the public companies, what you'll see is exactly what you'd expect, which is that initially they took a hit faster as growth slowed because just the nature of annual contracts or multi-year contracts, right? Annual contracts from an accounting perspective take 6+ months to really show up in your financials. But if you truly have a variable-based product, you could cut back a lot. One of the more extreme examples, even though they have some annual examples, is ZoomInfo, right? ZoomInfo, which is one of the most, the best SaaS companies of all time, best data companies. But when times got tougher, their SaaS customers or tech companies immediately tried to just use less ZoomInfo, right? So their logo churn went up a little bit, But their NRR plummeted as everyone said, hey, we're just going to have less reps, less SDRs, less whatever, using less ZoomInfo. We're not going to not use— we need data, we need to do sales, we're going to use less. So but now what's happened for a bunch of these folks that, that had a bit of a bump, that if you look, the CloudFlares, the Snowflakes, others like they also came off the low faster too. They lapped it up for time faster. So, net-net, I don't think any of it matters. I don't think it matters. I don't think one— I think the learning is one model is not more enduring than the other. Yes, did annual contracts protect folks for a quarter or two from a financial hit? Sure. Did it change the underlying issues in these companies? No, it just delayed them from an accounting perspective. So I don't think it matters. And then two, the other point, I don't even think there should be a debate anymore, consumption versus seat model. The thing is, people are— buyers are veterans. Everyone's bought hundreds of SaaS apps. And so if your app is like Stripe, price it like Stripe. If your app is like HubSpot, price it like HubSpot. Like, you gotta price— you add so much friction to sales if you price your app differently than the market prices similar apps, right? So I think the idea that this was something disruptive or that folks should look at one model or another is dated. This is a 2019 idea. Today, who's like you? Not— it doesn't have to be a competitor, but who's adjacent to you? Who's similar to you? Who has a similar buyer, similar way it's used? Use it a similar— you got to price the way they do or you're going to add massive friction 9 times out of 10. And so I just don't think, I just don't think it's a choice. Thank you, Francis.

Um, follow-up question to that. Jason Ash is asking if you think any of that's going to change with AI.

Nothing's gonna change with AI. I mean, listen, AI is, is, is, I'm not saying it's highly disruptive. It will change some things, but I, I, I, I see no evidence that AI is going to get rid of 90% of our sales and marketing teams. There's just no evidence of this other than Twitter people who don't run sales and marketing companies. The only evidence I'll throw out two thoughts. First of all, Veeva that we talked about, I literally, it's on saster.com today. You can see the write-up. It was very interesting. Veeva said, how is AI gonna change this pharma CRM business, right? Which they dominate. They're like, well, first of all, AI for drug discovery, which their end customers do, their end customers are doing, they're not doing drug discovery, but their customers are. They're like, it's been utterly disruptive for 10 years. It like Google and search has been one of the earliest areas that AI and ML and others were applied to because you have to do, massive amounts of research and combinatorial chemistry and other things to find these drug candidates. Like, AI is profoundly important to drug discovery. For Veeva's business, they're like, eh, they're like, we have no use for LLMs in our business. We have it. It doesn't do anything. We don't need to generate anything. It's not going to help us so much. So that's from a very thoughtful company that's a leader whose end customers are driven off AI. So just be thoughtful that AI isn't going to change every company. Um, there are others. Uh, we, I have done a lot of investing in the contact center. I have invested in Intercom and Front, uh, Orgus, which is number one in e-commerce. It's like Klaviyo for the contact center. Talkdesk, Maestro QA. They're in traditional SaaS. In traditional SaaS, it, it, it really is disruptive. People are trying to lay off, get rid of 30 to 40, 50% of their support teams. They, they really are. There's been a bit of backlash. A lot of those products do not— not those ones particularly, but a lot of the folks in the industry have not performed as well as promised. There's definitely an AI backlash there, but ultimately that will lead to a headcount reduction. But there's no way it's going to lead to having no one ever pick up the phone or answer a chat or answer an email. Maybe, but just not in our short-term lifetime. So I guess my caution with everyone that thinks that— I'm not saying that AI isn't disruptive, even in the contact center where it's having some of the biggest impact in SaaS, it is disruptive right now. It is disruptive right now. It's funny, we were at, I was at, I was, I was at Gorgias the other day and, uh, they were looking at one of their largest customers that has about 300 customer service agents. This is actually pretty interesting. I'm gonna write this up. They have 300 agents, or maybe it's 400, and Gorgias can rank, uh, ranks the CSAT of each agent, like which of the 400, um, who, who's the highest ranked? AI was number 8. That's actually pretty profound. Of the 400, there were 7 humans that people liked more than the AI, but the AI came in 8th out of 400. So I'm not saying it's not disruptive. I'm just saying everyone that says we can build a SaaS company with one person or get rid of sales and marketing teams. So far, all the technology we've layered on top of salespeople, all the technology we've layered on top of marketing, all the technology we've layered on top of engineering has not reduced the need for engineers. The fiercest competition for engineering talent is in AI. AI as an industry, OpenAI consumes, voraciously consumes AI talent. So, um, just be careful shooting from the hip here. Maybe it'll be true in 4 to 5 years. I highly doubt it. But all of the waves of disruption in software, for the most part, have created the need for more high, high-value professionals. Um, but sometimes less low-value professionals. Maybe we won't need as many customer support reps. It's certainly looking like it in some cases. Maybe we won't need as many SDRs that just blindly create cadences. I think we've already all kind of aligned on that. But high-value professionals, we don't have a history of technology displacing them. We have a history of technology enabling them. Just one person's view. But the fact that the AI agent was in the top 10 of 400 is kind of telling.

Very interesting. Jason, we'll probably close it out here with our last question from Tyler. Um, has some questions about bootstrapping. And some of your best recommendations in this situation. So Tyler, I'm gonna bring you up now if you're still able to come off mute.

Yeah, Jason, thanks. I came across you about 6 months ago and your stuff has become Bible for me, so I appreciate it.

Good to hear.

So I'm about, we're about 7 years in, bootstrap founder, haven't raised any outside capital. So hopefully this question applies to some other people. It's a little bit more of a broad stroke here, but I'm constantly focused on metrics like net new customer count. Customer growth is critical. NRR is critical, obviously, you know, to make sure we're paying our bills. So with limited resources, you know, and talking to 95% of my peers that are venture-backed, how can I I effectively approach the growth of my business?

Well, look, I can only tell you one thing that is slightly helpful. There is a point, and it depends on your margins and it depends on your industry and your situation, but there's a point somewhere between $10 and $20 million of ARR, which maybe, maybe you're not at today, but there's a point where it doesn't matter. There's a point where it doesn't matter. Software, assuming you have 80, 90% gross margins in software, your revenue is venture funding, right? Because it's funding. There is a point where, let's say you're at $20 million in revenue.

We do call it customer funded.

So yeah, unless, unless you're building OpenAI or Anthropic or something that's incredibly engineering and resource intensive, at some point $20 million a year of financing is enough for most B2B companies. It's enough and you don't, and you don't need it. And, um, I'm not saying there isn't value to capital, especially one round of capital can be transformational. Like if you could raise $4 or $5 million right now, I'm not saying you can, but now you can see how just one round actually could take a lot of stress out of your system. Right. Um, and, um, a lot of the real issue, which I'll chat about before we break, is that a lot of bootstrap companies fail what I call the balance sheet test, which I'll talk about, which adds stress. But when you get, and I know sometimes it seems far away. But there is a point at 8 figures in revenue where it doesn't matter whether you are bootstrapped or not. And if you— there's a— I think 2 years ago at SaaS Annual, I did an interview with Ben Chestnut at Mailchimp. I thought it was pretty good. I thought it was better than most people do interviews with Ben Chestnut. That was pretty good. It's for bootstrap folks you're watching. And he's like, one, we were bootstrapped because no one would fund us. That's why we were bootstrapped. And then by the time the VCs would fund us, we had enough cash. We didn't need them anymore. So it's a, it's a It's a simplistic way of saying what I said is there is a crossover point where it doesn't matter. And when we did this with Michael Cannon-Brookes from Atlassian, and he talked about this crossover point too. Now, interestingly, what Michael said was Atlassian wouldn't work without venture today because the space had become too competitive. When Atlassian started, there were 3 companies. Like, I'm mixing up my timelines a little bit. There's 37signals, which is still bootstrapped. There was Atlassian, and there was Fog Creek Software, which built Trello and Stack Overflow. And that was it. You had 2 competitors. And everything was so slow. You could do like, it wasn't anything like today that, that they had 4 years to get it off the ground. UiPath had 10 years. You get killed as a bootstrapper if it's too competitive because there's not, you need that extra 3 to 4 years to build up that momentum. But we, then you cross a point and the Atlastians and the Qualtrics and everyone grow just as fast as their peers. But when you look back and there's an old SaaS Store post on it takes 4 years longer, you can search for it on the homepage. It really does take 4 4 years longer bootstrapping, and then at some point it does normalize. So that's the best— I know it's not magic, but that's the best buck-up advice I can give you. The stressor, the stressor, and this is why raising some money now, wherever you're at, is the most helpful. What I learned, this is the lesson I learned early on from Josh Stein, who was the first investor in Box, and then I realized it was very right as I looked at other startups, is that If you don't have about half your ARR on your balance sheet, you underinvest. And I thought this was too simplistic, but now I've run this with so many startups, it's about right. If you're at $7 million and bootstrapped, but primarily you've only got half a million in the bank, you can't hire that VP. Even though you know that VP of sales would help, or that VP of marketing or product or CS, you can't. If you're at $7 million and you have $4 million in the bank, you can afford to hire any VP. That's great. You don't want to like blow all the money. But so if there's any way possible that you can get half your ARR on your balance sheet, it destresses SaaS because once you have more than half, you can invest not 10 years out, but you can invest a year out. And it happened to me as the founder. I wasn't bootstrapped, but back in the day I raised $8 million, spent $6 million, and then got profitable. And then, but, but we, I spent almost all of it, right? I got, I got it down and then we slowly built up our cash position when we got closer to the balance sheet test, I told all my VPs and executives, just hire anyone great. Not hire anybody. We, we didn't even have a budget, but anyone that was accretive with— once we had $4 million of cash in the bank, I trusted my VP of sales for sure. My CTO was a little cranky, but one of the best engineers ever. He's one of the senior scientists at Adobe today. My VP of CS, loved him. So as long as they promised me, pinky promised that this hire, this engineer or sales exec or CS was gonna— was great, was gonna make us money, was gonna be accretive. I didn't even need to look at a budget with $4 million in the bank, right? But with half a million, you can't— you ever— you got to scrutinize the— if anyone wants an eraser. Yeah, right. So if I know these two things may not be actionable, but try to get to that 8 figures, it will get easier because you'll have the cash. And the reason it gets easier in part is this balance sheet test. And if you can somehow I usually hate debt, but for bootstrap startups, if you can do debt or a little bit of money or even angel money or friends of money so you can get 50% of your balance sheet, trust me, your life will be less stressed.

Great advice. We're creeping up on 8 and the scenario played out with $705K is literally where we are at. And so we're beginning to get crunched for resource. Yeah, I appreciate that advice.

Cool. All right. Good luck. Thanks, man.

All right, sir. Thank you.

Thanks, Tyler. And thanks everyone for your amazing questions. We are wrapping up for today. Jason, thanks for an awesome session. Really informative, and everyone had amazing questions. So we really appreciate everyone. Next week, we are up for a highly requested topic with Lucas Price. He's the former SVP of sales at Zipwhip. Lucas was actually in here earlier asking some questions too. He's currently the founder and CEO of Yardstick, and he's going to be doing an awesome session about hiring and building a high-performing sales team. So one that we always get lots of questions about. So make sure to join us for that session next week. And thanks again, Jason. And you can catch the rest of the session live on YouTube and on the slide share too.

All right.

Thanks everyone.

Thanks everybody.