The 3 SaaS Metrics That Matter in 2024 with SaaStr CEO and Founder Jason Lemkin

3 metrics that are underdiscussed on social media, with venture capitalists, really with certainly especially with founders. I've actually got— I'm in the Bay Area this weekend, have 4 board meetings or investor meetings this week, and everyone talks about ARR and, and 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 2. 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 don't have any customers to renew at first. You're adding new logos at, on a percentage basis at high rates. It does, there's no real goal for net new customer growth. But what we are seeing today is that anyone with any scale, 4 to even from $4 to $5 million ARR to $4 to $5 billion, obviously that's a wide range. We're— I am seeing folks whose new customer growth 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, you'll still grow. At the bottom of this table, is the worst defenders. And again, these are great companies, so I don't mean to pick on anybody. They're all, these are all top, this, 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 in the NBA of SaaS. So probably the biggest defender 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 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 grab and go app for tech folks and SMBs. Now it's 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% 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 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. 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 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 of this list, um, 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 gonna 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, I, of course, revenue growth at the end of the day 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 cust— is, is growing your customer count. So. I would challenge you in your team meetings and your investor meetings, whatever, I would make this, uh, your number, your first slide. This, I think, is the core health of your company. Now, if, 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, 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 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. But 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 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 cashflow 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 Maritech, 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 5 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. Viva is the, is the probably the largest vertical SaaS company. It is CRM and a little bit more, but CRM for, for life sciences. It is for life science. In fact, Viva was founded by 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. Um, what'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 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 is just above it. Their growth is, 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 is goes to the bottom line. So Viva is 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 wildly efficient. And it trades at the same as HubSpot, a little, a tiny bit lower when you back out the cash. So both of them profitable, or depending on your definition, both of them have high margins, but Viva's margins are insane. Which can make up for good but not great growth. HubSpot is 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. That's 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. Uh, 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 Viva and Dropbox, right? It's just Viva 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 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 that. 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 $100 million in revenue, $100 million-ish growing maybe 50%. That's where HubSpot and Box looked like as they IPO'd 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, 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 SaaStr. 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. 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, 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. 50%, $600 million. It's only worth $6 billion. It's only worth 10 times that. All that work is only worth 10 times that. Rubrik's the next one. Rubrik's AR is really confusing. You can read, we put it up last week on SaaS or 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, 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 of the metrics are confusing, but let's call it what 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 a lot— 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 think 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 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 living in a bubble, you're 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, stay as long as you can. Don't be in a rush to get out of mom and dad's house. If the room is nice and they have a car for you and they pay for your Apple Pay, maybe stay at home until you're 22, 25, 26. I don't know, maybe this is a bad analogy, but I don't mean to, to— but there is 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, 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 haven't— 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 over, over the last decade. Many are now at $150, $200 million or so, $250 million in that range, big 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 don't mean to be discouraging, but 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 IPO window is open, but the bar's pretty tough today, guys. And so that, those are just a tough fact to be aware of when you're trying to understand it. So anyhow, 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 figure out more products for them. You'll figure out how to drive your deal size up. You'll figure out how 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 because 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, at least you're self-aware out of it.