Why the Future of Customer Success, Sales & Marketing Has Changed with SaaStr CEO Jason Lemkin

Jason, we have a question from Alina. I'm going to ask for her. She is asking about your thoughts on how to stand out in terms of customer acquisition among big and established competitors who are non-true AI, but they are saying they are true AI. And then someone else is asking for a distinguish— to please distinguish between true AI versus not true AI.

Look, I think we're getting lost in VC-isms and Twitter-isms, but let me step back from it. There is no question that at the vendor level, it's a force of nature. And what that means really varies. I would say I can give a wide range of answers. I think, for example, one custom company I'm an investor in is called Maestro QA that does contact center QA. That entire category by the end of next year will not, won't even resemble what it did 24 months ago because of AI. Everything is changing because what QA traditionally has done is had humans grade the outcomes of customer support. Everyone wants AI to do it for better or worse. Like it, it's the fastest change, even though people don't see it. Legal is happening. To. There are other categories like contact center where it is more AI being added to it. But if you look at Intercom, go to Intercom's homepage, intercom.com, you'll see what does it say at the top? 50% of support interactions are gonna be automated by AI. That is disruptive, but that's adding AI to a product. And then there's a third level where it's Sony baloney, where you're competing with vaporware and you're competing with apps don't work and you're competing with crap. And look, I don't have any of the answers here. What I can tell you though is a couple things. You gotta be in the game today. There is so much demand for AI, even if it's not fully understood, that if you go into, especially in the enterprise or more sophisticated parts of tech, if you don't have parity in AI, you're gonna lose deals. You gotta do it. And I, my biggest concern is folks that have fallen behind. That don't have strong enough technical teams to add AI to their products, or that resist it, resist it dogmatically. Hey, it doesn't matter in our category. It doesn't matter for HVAC SaaS. It doesn't matter for this. It doesn't matter. Maybe you're right. Maybe you're right, but it's not what the customers want to hear. Okay. Everyone is expecting innovation from AI and it's required. And whether you're pure AI or fake AI or native AI, I know it's stressful today. I think it will all shake itself out by the end of next year, what that means. And I think some of that is VC-isms, right? VCs want to fund things that are truly disruptive, right? Not that are fake disruption, which makes sense. It's the only thing that's enduring. Customers just want a dramatically better product. Ideally that can do more with less humans. What AI— AI can mean two things with customers. It can mean better outcomes, which is great, but takes work, or it really can mean, hey, listen, I can't find anyone to do any work. I can't find anyone to send my emails. I can't find anyone to update the website. Site. I can't find anyone to, to even do sales at my company. I'll take AI, but that's about efficiency and automation. But yeah, it is tough. We're here. I don't have the perfect answers, but I can tell you if you're behind in your segment, fix it in Q1 because you're not, you're gonna not get a pass in 2024 for not having some sort of AI parity with the competition. You're gonna, you're gonna get left behind. Just the market wants it.

Great, thanks Jason. Um, Alistair, you have a question for Jason.

Hi Jason, uh, thanks a lot, uh, for your time. Uh, I'm a seed stage founder of a construction tech company. Uh, we're at $1.5 mil ARR, uh, growing efficiently, 3 times year on year, and 40-odd staff, just expanded from Australia into the UK. Question is, as we go through this scaling journey, is around how you see the best companies steering into metrics and KPIs to drive performance, not so much at a company level where right across our financials and our SaaS metrics, but more from that sort of next layer of leadership, like the head of department level. Some people are more metrics orientated, some people aren't. And just, yeah, I suppose how you see companies scale and do well as they go through that growth journey.

So you're going from, let's call it 1.5 to 5, right? How metrics oriented should your leadership be? Is that the question? How metrics oriented should they be? Yeah. I would just fire anyone that isn't metrics-oriented. Literally, you don't need anybody today. You have the wrong people. First of all, I don't think you should ever hire anyone that isn't metrics-oriented, but it's usually a sign of someone that should either not be a VP or should be somewhere much larger than you're at. You want folks at your stage that ruthlessly embrace metrics. You want every single person on your leadership team to have a dashboard that they present weekly at your e-staff meetings. And they— and ideally today, send out to the whole company weekly. The best leaders send out weekly dashboards across all departments. Here's how we did in lead generation. Here's how we did in sales. Here's how we did in pipeline. They send it out at your stage. They send out to the whole company by email on Friday. You want everyone— and I would force every VP to come to whatever staff meeting you do each week and have them come with a dashboard. And the one that can't put together a dashboard and the one that argues with you and the one that doesn't, or even worse, doesn't even know what should be on their dashboard. It's a, here's a test. Don't tell them what it should be on it. Have them come up with their dashboard. Then when they do, help them make it better. If they can't do it, fire them. I don't mean be mean. And when I say fire somebody, I know I'm being direct. It's your failure as a leader for hiring the wrong person. It is not their fault if they're unable to be an owner, if they're unable to do a dashboard, if they can't do this exercise, that is not even 1% their fault. It is your fault for hiring them. Them. You screwed up. You hired a big company person or the wrong person. It does not make them a bad person. Do not humiliate them. Do not blame them. It feels like it's their fault as founders. Like it's profoundly frustrating when people let you down and they can't take accountability, but it is not their fault. That is the mistake we make as leaders, as driven founders. It's all your fault. You should not have hired them. And, but use this dashboard is the greatest trick. I know Taylor and Amelia are nodding with me because the folks that can't get that email out, that can't build the dashboard, it's hopeless at your stage. I think it's hopeless forever, but eventually you get so big that Elena or Trey have a team that builds their dashboard and they just hit refresh and then they get so big, they don't even hit refresh themselves. They just get handed the dashboard because it's too much work to hit refresh, but you're not there. So anyhow, I'll boil it all down to this dashboard trick. Have everyone do a dashboard for January, tell them to come up with their own dashboard. We even do it on our own team. We do it in Notion, do it however you want, let them do whatever they want, but let them compress all their metrics into 5 or less metrics, not 50. Some people need a little help to go from 50 to 5, compress it to 3 to 5 metrics that ideally should tie to their goals for next year. No one should have more than 5 goals in each department. So your company should have 5 goals for next year and each department should have 5. Each board meeting and company meeting should have those 5 goals and show progress against it. And then your weekly dashboard should roll up into those goals. What are your goals? ARR, NRR, Opportunity creation, pipeline creation, story points, features, whatever it is, pick the 5 goals for the year. And the best leaders will just report on progress and they won't make excuses and they won't hide from it. And they won't not send the email when the week is bad. And they will tell you why they're behind. And not only that, the best leaders will tell you they're behind before you realize it. That's what leaders say. The rest will hide from these weekly dashboards. They'll hide and just. Apologize to them, say it's your fault, and move on from them in January. Don't even have them work at your company in February. It's just going to dilute and distract everyone else that can do the dashboard. They should be gone in February.

Amazing.

Thanks, Jason.

Okay, next up, Suman, you have a question about IPOs in 2024.

I'm Suman. So I run a seed stage AI fund since 2020, have about 30 companies across two funds so far. So since you've gone through a number of business cycles, once the IPO market opens up, liquidity, et cetera, do you think later-stage kind of AI SaaS companies that are working, like growing, might consider going public earlier? What, what does that scenario potentially look like, or how are you thinking about it?

Let's step back for a minute. First of all, it's a misnomer that the IPO window is closed. Canva's at $2 billion in ARR, growing over 40%, and it's profitable, cash flow positive. It can IPO this afternoon if it wants. It'd be a little hard to get it through the SEC in one day, but it can IPO and it could have IPO'd any month this year because it's been profitable for 4 years. It started this year at $1.4 billion. With those metrics, it could have IPO'd in January or February or March, no matter anything. And it can IPO any month it wants next year. Databricks is, is another top candidate. But my point is it's a misnomer that the windows open and close, right? They only open and close for the marginal ones. Uh, Bird declared bankruptcy today. Okay. They went public at a $2 billion valuation at the peak. That's a window open for gobbledygook and scams and fakenesses. And also maybe for marginal SaaS companies. There are folks that IPO'd in 2021 that were at the margin, 100%, $100 million in ARR with mediocre growth that weren't cashflow positive, probably shouldn't have IPO'd. Okay. All the ones that are sub a billion or sub a billion and a half shouldn't have. So the window closes for the obscure or the fraud or the edge. Uh, but it's always open. And so what do I, what's happening though? And I've invested in one way or another in about 4 companies that are at $200 million ARR or above. Okay. And so I can watch, I'm really not on the board of any of them at this point, but I can watch what's happening. And then they're waiting. Why are they waiting? Let's imagine it was this year and you're at $200 million in ARR growing 40% and you're cash flow neutral. That's pretty good. What if you're worth 6x and you IPO, you're worth $1.2 billion and the last round was at $5 billion. Like, it's a little stressful. So people are waiting, they're waiting to IPO. And the number of folks at $200 million, like, just look at some of the SaaS stuff we've done. Greenhouse is at $200 million. Even with challenges, Gainsight's at $200 million, right? Canva's at $2 billion. Algolia is at $200 million. All these folks are that we've done stuff, they're all, they all can IPO when they want to. And they've waited because the last 2 years were not great times. And the question is, in 2024, did they stop waiting? And I think they stopped waiting. And we talk about ServiceTitan. I wrote it up tomorrow. It's going to be on SaaS Tomorrow. I think that'll be the first SaaS IPO of 2024. Okay. They're at $500 million in ARR, growing 40% with pretty— with the client, with almost— they're not— I don't think they're cash flow positive, but they're getting there. They, they— yesterday the press said they'd already filed IPO to IPO in March or April. So that will go public. And the last round was, I think, at $9.5 billion. Maybe they won't be worth $9.5 billion. Klaviyo's last round was also at $9.5 billion. They're worth $7 billion today. And so I think what's happened is a lot of the, the super late-stage investors have given up on those late-stage valuations, right? Canva was at $40 billion and maybe they IPO at $20 billion next year and the world doesn't end, but there was a lot of pressure to maintain those late-stage valuations. I think that's evaporated. To be nerdy, I think a lot of it's evaporated because they are in SPVs and other vehicles that that the VCs don't care about anymore. They've written those SPVs off. They literally don't care if they're down IPOs or down rounds. That's one technical thing. It took me a little while to realize, but they're going to go. And I think by the second half of 2024, people that either want liquidity or they want the cash or it's time, they'll suck it up and they're going to stop. They're either— valuations will reflate, public companies will go to 8x or 9x on average or 10x versus 6x, and then everyone will rush to IPO if valuations reflate, right? Or they won't. And it'll be 3 years of this. It'll— this is where this is the 3rd year of things like not being like crummy for valuation, not necessarily for SaaS. Again, look at this Canvas and the Service Titans and the Databricks. These are great companies, but the multiples fell off a cliff in 2022 and then they remained crummy in 2023. Either we get used to it this year or we see an uptick. I don't know which one, but people will normalize it. I think I'm feeling pretty good. That by the end of next year people are just going to, you know what, it's time. I'm at $240 million in ARR. I wanted to be worth $10 billion. I'm going to be worth $2 billion. It sucks, but what are you going to do? Life is life. Do I think that there will be bubbly AI IPOs that are able to IPO without traditional metrics, without being at $200 million or more in revenue, without top-tier growth and without decent efficiency? I doubt it. I don't think there's going to be any type of SPAC-type bubble next year for AI. But maybe, but I don't think right now we have so much liquidity in the public markets that we can maintain that froth. The other thing we learned from Klaviyo, Arm, and the Instacart IPOs, those are the 3 that kind of reopened the window, so to speak, although I don't think the window was ever closed. What we learned, if you squint at those deals, especially on the B2B side, is there wasn't a lot of demand. And if you haven't been through an IPO live, if you haven't been part of it and seen what happens. It is IPOs, and this is niche, but it may be interesting for folks to learn. There's not that many people that invest in IPOs outside of crazy frothy times of 2022. It's a niche category because look, everyone could buy the next day. That's the beauty of the IPO. Like I am the biggest Klaviyo fan on planet Earth, right? $800 million growing 50%, crazy metrics. Everything's great, but I can go buy the shares today cheaper than at the IPO. Why rush to the IPO? It's a niche of a niche of a niche. And what happened in these IPOs is we didn't see dramatic demand. That's why none of them popped. There just wasn't demand. It's a thin, it's a thin asset class, just like venture's a small asset class. So is the IPO market. And so I don't know that it's rich enough today to support speculative AI IPOs, but may, maybe, right?

We'll see.

It's time to get back to business everywhere. What do we got next, Taylor? Hopefully it was helpful.

Thank you.

Next up, I have a question I'm asking on behalf of Denise. She said, Jason, I saw a recent LinkedIn post that referenced customer success pullback and refocusing that labor to more sales KPIs and renewals. What do you see for 2024 and beyond regarding those selling more complex SaaS regarding sales roles, KPIs, namely SDRs and lead generation nurturing?

Look, I don't know, but what I have learned this year is that those are the functions that we're leaving one era behind and we're going to the next era, right? We are leaving the era of how we used to do customer success behind. Uh, for me, the quality of CS has declined so much the last few years, but it was accelerated by the fact that The downturn forced so many people to focus on upsells from the base, price increases, jamming products down people's throats that CS was pushed into a sales role. And I don't think it's going back in many cases. So CS has changed, I think, permanently. I think everyone that's been doing this, no one thinks the age of the SDR is dead, but everyone thinks that AI will radically change what the SDR does. I was just having a deep dive with Kyle from Salesloft on this. And this is a 9-figure platform. They think the traditional SDR is dead too. They're at Salesloft, right? It's dead. It doesn't mean that these products are dead, but that old role is dead. And I'm worried about CS. I think that having CS report to revenue is a terrible idea. It's too late. But when CS reports to sales, all CS does is try to get more money out of you. I wrote a SaaStr post this year, the 4 truly terrible, horrible customer success experiences I had in just one week. If you read it, I'm not going to tell you who the 4 companies were. But 2 are public and 2 are pre-IPO. And these were horrendous experiences I had with CS, but most of that was because they're in sales now. They just wanted to charge us more. They just wanted to get more money out of me. That's not helping me with my product problems or deploy my problems, but that's changed. The SDRs, I'm hopeful that SDRs now slow down. That instead of sending 10,000 emails a week, which maybe this is a good thing that Google and Yahoo are going to partially block instead of just sending a bunch of emails a week, not even reading them, having it say name, string, last name, whatever. How about let's force people to slow it down and actually talk to 50 great prospects a week. That always works. I'm hoping it's positive and that AI allows SDRs to be more value-add, hopefully to make more money. The problems with SDRs is that it is a hyper entry-level, high churn role. I don't think that benefits most of us. I'm hopeful that actually gets better from all of this. But it's all in flux. The AE, I'll finish with one final thought on this. So this year, every, every big public SaaS company, and almost everyone below that got more efficient, right? We've written this up on SaaStr, right? Folks like that have gotten radically more efficient. Like I think monday.com in 18 months went from -5% operating margins to +20%, right? Salesforce is hitting +30%. Everyone got across the board. Every SaaS company got radically more efficient. Almost every single one there, if they're not GAAP profitable, they're cash flow positive, and they have high operating margins. They got there. But what— it's really interesting until you dig in. What didn't get better was sales and marketing expense. Their CACs didn't get any shorter. Everyone got radically more efficient, but their CACs didn't get any shorter. What happened was they traded off growth for the bottom line. And so if you sell less, but instead of investing all this money to grow 60%, you grow 30%, but you mostly rely on your base for upsell and retention. You actually get more efficient because you're not spending as much on sales and marketing, but your CAC didn't go down. No one's CAC went down the last year, even though they got more efficient. No one's CAC went down despite the 100 SaaS tools we bought, despite all of these things we didn't get. And so we're in a weird reckoning for SaaS and B2B. And ever since I've been doing this, People have criticized SaaS for never being profitable. They criticize Salesforce for it. The net first next generation IPO was Box in 2015 at their first SaaS round. They criticized Box for not being profitable and no one was ever profitable in SaaS until this year. And finally everyone got profitable, but the main way they got profitable was by growing at the slowest rate in history for SaaS. So everyone stopped hiring and just focused on renewals and it worked, but we have an existential issue to grapple with the coming years. Which is we just plain didn't get more efficient. It didn't matter. Working from home didn't work because CACs went up. Buying 100 sales tools didn't work because CACs went up. Growing more slowly didn't work because CACs went up. Nothing addressed the CAC issue. And so when we want to grow again faster, how are we going to deal with the fact that CACs have not gotten any better? Some folks are magically hoping that AI and ChatGPT will change this, but so far nothing's changed in software. So far since I've been involved in SaaS, Since 2005, we have not gotten any more efficient in sales and marketing. We have gotten more efficient at other things. So that is the last reckoning. We haven't really had a reckoning in sales. We've shrunk our sales teams or we've kept them flat. So it's felt like a reckoning. The layoffs have felt like a reckoning, but we actually hid in our NRR. We hid in high retention and we didn't solve the fact that it remains extremely expensive to acquire new customers in SaaS. We haven't gotten any better at that. So that's the next frontier that we'll see if we tackle or if the markets get better and we just pretend our CACs are lower than they are. We'll see.

Thanks, Jason. Okay, everyone, we have one final question that we're going to close out with.

I'm a longtime listener, first-time caller. I'm a chief product officer at Pathfactory, which is a content marketing company. And you're talking about customer acquisition cost and sales and marketing as the last frontier of cost savings and efficiency. And I work a lot with marketing companies to reduce their spend because we're using AI and automation. Which leads me to this question. I think the unit economics of what we think are going to change in SaaS, from my perspective as a CPO, I'm wondering if we're actually going to move away from user licenses being the bread and butter of how we define economics and scale and move in a very different direction. So I wanted your insights into this because—

On price— pricing models change, you mean?

Pricing and packaging, like think of the world built on user licenses. And now we just talked even earlier around AI and automation. Saying less resources, different people, more workflow automation. So how do you think the unit economics of our industry will change as a result?

Look, I'll break it up into two different questions. The first one on marketing spend, we all have to spend more on marketing next year. What happened? Yes, you worked with folks that reduced their marketing spend to get more efficient. Great. But if you didn't grow your customer base, it wasn't really worth it. This is what everyone happened in marketing this year. And it's going into next year. Basically what we saw was sometime around November 2022, it just stopped. Marketing spend just stopped. Okay. It didn't stop in January 2022 when things got tough. People kept spending, kept spending. And then at the end of 2022, when they're planning for next year and they have to deal with what's changed and they have to deal with everyone got focused on generating very short-term pipeline, very short-term ROI versus medium, long-term. The spend just got cut in half and that's great. And it worked and everyone got much more efficient, right? Their dollars. But what happened is they only put the dollars into efficient stuff. So of course they're more efficient. It's very easy in marketing to shrink to the inner circle and be efficient. The hard part of marketing, and that's hard enough to get the inner circle spend right. The hard part is spending the outer circles. The hard part is the stuff that pays off in 18 months or 12 months, or might not work. That's the hard part. That's the art. And that's where a mediocre CMO will just spend all your money. It's all gone on, on crazy stuff. Crazy stuff, but a good one actually will show you the secrets, right? And so we've gotta actually spend more on marketing next year because we ended up with the lowest growth in the history of SaaS this year in the public companies, the lowest growth ever cuz we didn't spend on marketing. That's not where any of us want to be. We don't want to be in a low growth, but more efficient market. We want to be in high growth, high efficiency. We all want to be Canva, but we can't be right. So this is the inexorable challenge and I don't, I'll tell you the, uh, we did another great interview with Aaron Levy recently. It's on SaaS on our podcast. And I loved what he said. It's, I guess it's obvious, but he said it working at scale like us, it's a jigsaw puzzle. I have this much in sales and this much in marketing and this much in product. And my half of my job as CEO is the jigsaw puzzle. I have whatever he has. I don't know, 3,000 employees. We, let's, they're a billion in ARR, $300K. He probably has 3,000 employees. I'm making that up. We can Google it. Yeah, he's got 3,000 chips. For his poker game next year. Right. And he's got, he's at a billion in ARR. So with an 800, with an 80% margin, that means you've got $800 million a year to spend. He's got $800 million a year to spend in a jigsaw puzzle. And we got it. That's the way it works. And we've got to spend more to grow more in terms of the pricing models and all this. Look, I will tell you, pricing is one of the most popular topics out there in SaaS, right? We could literally do 52 weeks of pricing. And that would have the highest views and the highest everything. But at a high level for founders, I don't think it matters. And what I mean is this: in each category, there are certain patterns. There are categories that are like Stripe, where everyone's copied Stripe's pricing patterns, that are category like Salesforce, and we copy Salesforce. There are leaders and we all copy their pricing. And 9 times out of 10, innovation— innovating on pricing is a terrible idea because it confuses your market. And so do I think utility pricing is better than seat pricing, or do I think a combination is better? I don't know. If AI pricing remains expensive, which it is today, we may see new pricing models. So there may be forcing functions where we have high COGS. Right now, AI is extremely expensive, right? But just copy other people. And if a market is in flight, if a market is changing, if a market wants to move to pay-as-you-go, if a market wants to move to freemium— New Relic and others moved radically to freemium once they moved away from it, because because the market wanted it. Datadog and others forced New Relic to change their business model. You can argue on a sales call, or you can just give the prospect what you want in pricing, right? So I, I know it's exciting to talk about pricing, but I think at a strategic level, my first principle is copy whoever is bigger and like you. It removes friction. The best way to close a customer is to remove every bit of friction in the process, right? From discovery to renewal. There is friction all along the process from discovery to renewal. Doing better at marketing makes discovery easier for the customer. People want to be marketed to the right way, right? Making a product so great that it renews itself removes friction at the renewal. I get in a lot of debates with folks talking about should sales do renewals? Should account management do renewals? Customer should do renewals? AI. Your product should be so important. So beloved, so cherished, and so cheap that I'm thrilled to renew. The best products can have finance or AI do the renewal because I'm not ripping you off. I'm not trying to triple your price. You love my cheap product and it, and cheap in quotes, it could be a million dollars a year, it could be $100. The value is so high that a finance, that an automation can do the renewal. I think if you have humans in a renewal, you're, you have failed your customers. You have failed your customers. If you need sales or success or account, it doesn't mean at the margin you don't need help. I'm not saying you don't need to parachute in on 10% of your deals, but if 80% of your deals can't sell for new, your product's not good enough. Or it's just not valuable enough. That's the painful lesson from the last 2 years. No one's going to buy anything that they don't need, but that turned out to not be true in 2021. And everyone churned the apps they didn't need. But if I can't run my business without you, I ain't going to churn, but Copy your bigger competitors to start in pricing. Resist the urge to be clever unless there's a demand for it. And the last thing I could say to folks thinking through next year at product, where you are or wherever you are, but if you're, if you've done okay this year, think calmly, take a whiteboard and talk about everything from discovery to renewal. How can you remove friction from your process? What can you do to remove friction? It is actionable. It is doable. It will make your product better at all levels. It will make your customers happier. Just remove friction. It always works. So again, I know we went over. Thank you, everybody. We'll do another one of these and we'll, if people want to do more of these, we may be able to figure out a way to do more of them and maybe in a separate session on Fridays with some other speakers. So thanks everybody and talk to you soon.