Battery Ventures’ VP Brandon Gleklen on The Latest in SaaS Metrics (Workshop Wednesday)

People are joining. Welcome. All right, welcome everyone. Feel free to turn on your cameras as you're joining. We'll just give it a minute while people continue to enter. Excited to see you all today and thank you for joining us. All right, welcome everyone and hello Saster community. Thank you for joining us. We are thrilled to have you back at Workshop Wednesday. Reminder, this is every Wednesday at 10am Pacific. We will be here week after week to share detailed, interactive and hands on workshops. We'll bring along a SaaS expert to walk us through some content that they are an expert in and kick off the interactive discussion. You will have the opportunity to interact with the speaker directly. So feel free to turn your cameras on, get your questions ready because we are excited to see you all today. As well as connecting with the speaker, you are welcome to connect with your fellow community members. We want this to be as interactive as possible. This week we will hear from Brandon Glecklin, principal at Battery Ventures. We will be discussing the fall of the metric monolith. Exciting stuff. Again, these sessions are as interactive as possible. Please have your questions ready. Feel free to come off mute to ask them or if you want me to ask them while they're in the chat. That's totally cool. Whatever you're comfortable with. So to kick things off, let's ask Brandon a few questions to get to know him better. All right, Brandon, so what is one of your favorite investments you or the firm has made in 2022?

Well, first off, Caitlin, whole Sasser team, thanks so much for having me. This is a presentation I gave at the Sasser Annual and it's really cool to be invited back to give it to this group. And thanks everybody for giving some time in their Wednesday to do this. In terms of investments we've made so far this year, obviously I love all of them. But I'll talk about the one where actually I just had the board meeting last week or last week yesterday, which is a company called Compt. The website is Compt IO. The CEO is Amy Sperling and she's like really, really phenomenal. We've done a lot of investments, I would say, over the last few years that are related to like what I think of as being kind of the easiest macro shift for us all to think about, which is kind of the shifting nature of work, you know, people working remotely. I can talk about so many investments battery has made where that's been sort of at the core of why that exact investment was interesting. But this one specifically looks at benefits. So for example, for the Folks on the call, you probably do things like in office lunches or like a local gym discount. These are a lot less relevant for kind of a global, fully distributed workforce. And so what comp helps companies do is set up flexible stipends. So you want health and wellness stipend or you want people to be able to eat meals local to them even though they can't come into an office to eat lunch. They just make it really easy and tax compliant and very user friendly for people to be able to set up these stipends. So a really cool company being used from everybody from, you know, large accounting firms to, you know, exciting startups and unicorns and all of that. And Amy is just like a force of nature as a person. So comp IO and would highly encourage everybody here to check it out.

Awesome. Who doesn't love benefits? Great answer. What has most surprised you about venture capital this year?

I would say, you know, the biggest surprise and you know, in some ways it's not a surprise, but it's just been really awesome to see is just I think the resiliency of the founders that we work with. People give the metaphor of going from peacetime to wartime. And I think for a lot of the founders that we work with, maybe for some of the younger ones, even their whole professional career, they don't know they've never been through an exact environment like this. And the way that people have been able to shift strategy, shift focus and kind of reorient on we're talking about metrics in this presentation, just operate their companies in new ways. I think the speed in which people have been able to move and adjust has just been really awesome to see. I think it's been a really big year of growth for a lot of people in this ecosystem. Like, you know, building new muscle, learning to do new things. And so I think the speed with which that's happened has been really, really awesome for me to say.

Wow, agility, growth and resilience. What a great way to kick things off. Our last question before I hand it over to your presentation. Who is one of your favorite co investors?

Yeah, so this is a hard question too. Like I really like, love and respect so many of the folks that I work with, but when you kind of give me a hint that this could be a question, the first person that came to mind is Sarah. Sarah was a GP at Greylock. Most recently we work together on an investment income called shortcut. Shortcuts. Kind of a JIRA killer is basically how I would describe it for software project management. But the reason I picked Sarah is we have a very small board. It's three folks, me and my colleague Neeraj and Sarah, all working with Kurt, the CEO. And so it's a very small room. It's, you know, you can't get lost. Right. You know, I have some other boards that feel a little bit more like, you know, there's like, you know, eight investors that get invited and everybody maybe says they're one thing and that small of setting, you know, everybody's kind of constantly contributing and you have to show how flexible you are across, you know, from whether it's R and D or sales or kind of all the different functional units. And she's just one of the people that whenever she speaks, I listen very carefully and I learn new things every time I get to chat with her. And she's got a new phone called Conviction. So she's really phenomenal. And I feel lucky to get to work with her.

What a great compliment. Well, thank you for indulging some of our quick questions to start things off, but I will hand it over to you because I know you have a lot to share with us.

Yeah, for sure. Well, again, thanks. Thanks to everyone. And definitely encourage folks to keep this collaborative. You know, chime in with questions or put questions in the chat. I'm gonna try to go through this pretty quickly so we can get to more kind of Q and A style. But think of this as generally being like in the year 2022. What metrics should we actually be solving for? And so maybe a little bit of just kind of historical stuff. The classic disclaimer, actually, you should start with maybe who battery is maybe to get kicked off. So for folks that aren't familiar, we've been around as a firm since 1983. We're currently investing out of our 14th group of funds. Combined capitalization of of 3.8 billion, working with over 450 companies. So we've got offices all over the place. I'm based in New York City. We have offices in Boston, two in Silicon Valley, Israel and London. So very much, you know, a global firm doing a lot of work in software. And then who am I also useful? So I got started at battery in 2015. I spent six years in Boston, came down to New York to help grow our presence here. So we were maybe two or three people before the pandemic. We're now up to 12. So if any folks are in New York, please swing by and say hi. And here's just a sense of some of the companies I work with on the right here. So Niantic is the loan consumer company I work with. The rest are all B2B software. And in terms of when we got involved, it ranges from the earliest stages where founders signed a term sheet and quit Google the next day, all the way through doing large pre IPO. I think 4 billion was the highest valuation in terms of us getting involved with a company for the first time. So I'd say I spend most of my time in kind of like the 20 to 200 person bucket in terms of new investments. But quite a few of the companies on here actually have now north of 1,000 employees. So yeah, so let's take a step back as we think about SaaS. So if we go back to you sort of the dawnings of this industry, maybe let's just even go back, you know, 10 years or so, there was a shift in our language from talking about, you know, gap to basically SaaS metrics. And like as this model has matured, we've gotten a lot better at saying like actually these gap metrics, right? Revenue, gross profit, EBITDA that we use to measure businesses across sectors. We need to have some consistent language. There's actually like a new language that is better for describing SaaS software as a service businesses. And so, you know, I think for all of us, you know, it's very nice that, you know, when we talk about ARR these days, people know what that is, right? People don't get air and revenue and like all these different concepts confused. We actually know like what all these actually start at the bottom. And so as this industry has kind of grown up, there's now this common language to describe businesses. But this common language is also led to like a common understanding of what a great SaaS business looks like. And so folks can probably recognize, you know, some of these thresholds. I like to joke that, you know, when I was getting started in 2015, I would make flashcards for these, you know, what, what is like great net retention? What is, you know, the, the right, you know, ARR to burn number or, or you know, gross retention. And it's become, you know, kind of what we think of as being like the metric monolith basically. You know, you need to have all of these things and if you don't, like, are, are you building a valuable cloud business or is there something wrong wrong with what you're doing? But we actually see this monolith falling apart and that's falling apart primarily due to what we view as two of the biggest drivers for value Creation today, namely machine learning and product led growth. So I don't need to spend too much time going through all the different things kind of like side comments here. But basically one way to think about it is SaaS used to mean two things. It was both model for delivering software, right? It's, you're not, you're not getting your software on a CD and, and you know, you're getting software delivered to the cloud. But also it was both kind of the infrastructure, it was a way that software was being delivered but it was also a business model, right? Software as a service subscription software, you know, typically sold by an ae, typically a certain deal size, typically start targeting a certain kind of customer. You know, that first part for the most part is right is still true like cloud software is, is a way of delivering software. But the business models are changing quite, you know, quite significantly, right? And things like product led growth are changing basically how the economics can work for a software business, right, when it's not a sales rep LED model. And things like machine learning, like there are more data intensive SaaS apps now than there has been in passing. Those companies can look, can look very different than sort of other businesses. The way that we think about it is that the cloud is expanding. We like to joke that the cloud's now becoming three dimensional. There's this metric model of their approach to building a software business. And to be fair, these companies aren't going out of fashion. Top down sales, recurring revenue will never be out of fashion. If you can land these big, large enterprise deals, if any of you guys, you know, sell to governments, that 10 year sticky, massive deal, you know, that'll, that'll never be a bad way to build a great business that can, you know, produce a lot of cash one day. But there's now like an expansion of models that people can take that still create value, that's still, you know, where the potential markets are significant, where the potential to build a large profitable business exists. So SaaS isn't a business model anymore. SAS is. Cloud is now a collection of business models. And so thinking about, you know, a metric model, if you need to stick to every single one of these points or your business falls apart, doesn't make as much sense anymore we think. And so, you know, well, where does that leave us, right? We all need goalposts, kind of look at our business, kind of analyze our success, you know, try to figure out if we're on the right path. You know, I don't think that SaaS metrics are going to go away. Right. I think measuring, you know, your net add, measuring your retention, measuring your lifetime value. You know, that's never going to go out of fashion. Same way that, you know, good old fashioned gap metrics, right? Revenue, gross profit, ebitda. You know, one day everybody on this call will be, you know, public business and all this is going to have to translate back to that one day. But we do think that our language for how we analyze businesses can and should shift and we should use sort of different terminology to talk about, you know, what, what a great business in the cloud can look like. And so we call that new language going from SaaS metrics to now being called cohort economics. So basically the key insight I think is just the shifting of thinking of your business as a set of averages to thinking about it as a collection of cohorts or a collection of segments. Said simply like, it does not really make a lot of sense to talk about ARR for customer or to talk about retention as an average across your customer base, where your customer base can look very differently. Right. Simplest example is, you know, people who are swiping a credit card and never have talked to a rep in their life versus somebody who's going through an RFP and who you're invoicing, those are two very different customers that have very different economics in terms of acquiring them and servicing them. So averaging that out and looking at that average point and saying this is what business will be, it doesn't really make a lot of sense. And so we're encouraging all the companies that we work with to do. And when we're evaluating new investments, like what we're doing on the back end is like break out your customer base by the different segments that you find to be relevant to your business. So, right, pricing plan, industry geography, go to market, channel customer headcount and analyze your business like through those lenses rather than just looking at purely just the averages. And then once you've defined these segments and you're tracking them, you can figure out which ones are working for us and which one should we invest into. And so here's kind of an example of that. The market's moved, I would say in the last, probably five years or so from an understanding of retention from being like a point in time metric. Like my annualized GROSS Retention is 79%. To think about retention through cohorts, right. If you, if you look at this, I think you guys can see my mouse, right? It's much more instructive to say, well, how are, how's retention transforming over Time, you know, our newer customer cohorts or, you know, customers that sign up more recent months, are they performing differently than customers in the past? Right. So there's a shift from going up here to over here. But we think taking it a step forward, thinking about your business as a collection of segments, you can look at it through these segments. You should be running analysis of cohorts across these different segments, understanding your cohorts by geography or by customer industry, for example, to understand which of your segments are retaining well and growing over time. Once you have these segments broken down, you've done that cohort analysis. You can actually do this analysis of what we call cohorted LTV or realize ltv. You'll notice there's a downloadable Google sheet down here. We will be sharing this presentation certainly through battery channels, likely through I guess probably SASA channels as well. So encourage folks to download this. And you can see exactly how all the sausage is made here. But the basic idea is take your starting MRR in a segment, you know, gross profit weight that you got the retention from the slide before, right? You actually see, all right, well, what is the ltv, you know, per, you know, per cohort and you know, kind of per month and track that going out. And so once you've got that, that realize ltv, you can look at your payback on this kind of through this measure, right? So take your sales and marketing expense as you're starting, understand, you know, you know, and basically wait that on through. So, right. In this particular example, you know, let's take February 2020 here, right? So in the first month, 19% of it stay back and it looks like you're breaking even, you know, starting in month five, where all of a sudden your realized LTV is now, you know, exceeding basically what you spent to acquire that customer. You know, this is kind of like an interesting example graph you can see. You know, something apparently happened in April 2020 in this business where all of a sudden their payback ended up getting pushed out. This could be for reasons that make a lot of sense. Maybe you hired a bunch of sales reps that aren't productive yet and that's pushing things out. But basically, if you can have this view of your business right across your different segments, you can actually understand like when do customers in this exact cohort, like when do they become profitable and how is that transforming over time, right? Don't look at your averages, right? Don't say you are companies. CAC payback is X. Look at your CAC payback across different segments and look at them over time, which is, which is what this analysis helps you to do. And again, there's the Google sheet that will help folks work through this. One kind of comparison point or I guess analogy that we make is you can think of subscriptions as being an annuity, right? And in a traditional sales model, right, if we look at, you know, the kind of traditional metric model with playbook models, it's a very specific annuity where there's a big trough of cash, right? You've got, you know, your reps who are flying, you know, over the world and whining and dining and there's a long sales cycle and there's, you know, there's an RFP and, but you know, it's a really stable long term annuity, right? Your net retention is, is great. The deals that you're signing up are long. And so, you know, basically this is actually kind of how, you know, this is why us venture capitalists are around, right? We're around basically to fund this trough. And a lot of great companies, your salesforces, your guidewires, your workdays, they look like this. But now there's new annuities that are possible today. You can look at bottoms up sales models where people are swiping credit cards and maybe they don't have 120% net retention. Maybe their net retention's only 100%. Maybe actually it's even slightly below that. But if your payback is fast enough, you're getting profitable on those customers quick enough and your market's big enough, you can still build a large, high, profitable business. You're also saying, you know, kind of this viral in account spread is sort of what we call it. You'll get a company like, you know, Zoom and Slack are kind of great examples where they see this large expansion, you know, exploding usage where they're not signing up all that customer value upfront, but they're seeing this, you know, in the short, the payback is shorter because they're spending a little bit less money on kind of acquiring customers than maybe Salesforce would. But they see these, this viral sort of in account growth. And so how do you like measure that and think about that and think about customer profitability. There's a lot of different ways to build a great business in the cloud. And you don't have to look like this. Like you can have a model that looks like this where your annuity sort of has the shape and it can still be okay. So what you can actually do, and again using this sheet that's in this presentation, but you can actually plot your annuities on top of each other, right? So perfect example, right? Our enterprise, right? Big cash trough, but high net retention. In this example, for whatever reason, for this specific made up company, of course, European customers, there's a slightly lower cap, but the curve of this line isn't quite as up and to the right. So their retention is probably lower in terms of realizing ltv, their self serve segment, right, Pays back like immediately by like month two, it's breaking even. But you can see how, you know this, this line isn't collecting up as much, right? Ltv, they're basically capturing all of it straight up. But you can look, if you can plot your business in this way, you plot your different customer segments, understand when tax is getting paid back, understand, you realize ltv, if you can plot your segments on top of each other like this, you can actually, you can have a conversation with your management team, with your board, like which, which one of these segments should, should we be investing into right now? Should we, you know, do we, do we have a lot of access to capital and, and really, you know, these, these enterprise segments look the best? Like we want to go, you know, really prioritize those or actually, you know, we want to just get cash in the door as quickly as possible. And by month six, you know, we're getting the most amount of cash from self serve. And so yeah, the LTV is a little bit lower. But you can have these more thoughtful business conversations if you're able to, you know, kind of just measure your business this way and kind of look at your business this way. You know, this is kind of all been sort of focused on, you know, sales and marketing metrics, this whole presentation. I do want to give a shout out to another thing that we've been talking about recently, which is ARC per employee. Another thing that's changing a lot in just the way that, you know, SaaS companies operate and work is your sales and marketing expense is, you might be a lot smaller for a PLG business, right? Again, you don't have these high costs sales reps flying all over the place, but you might be needing to invest way more to products or into other areas of your business. And so like how do you think of your, your efficiency there? And so one thing that we've been talking about a lot is really using ape ARR per employee as being sort of a profitability North Star for your business. And so moving beyond just looking at only your sales and marketing metrics to understanding you Know what is our ARR for employee and, and what's our break even ape? You know, what do we need to get to from a revenue perspective with this employee base in order for the company to be, to be break even. And we find this to be like a really simple, easy to understand metric. So yeah, inclusion, like still never a better time to build a SaaS company. We're still very excited. We're still actively investing. I gave that example of comps earlier, but battery's been doing a lot of investments. And one thing that I think is so amazing to see is just how great companies are getting started everywhere. How what was once thought of as niche markets are creating large public software businesses. You know, a lot of opportunity out there. And this is just like a slide I love. I think there's, there's still a ton of opportunity out there for, for companies, you know, all over the world to build great businesses in the cloud. I think we can skip by this because you guys will have this, but maybe I'll give like five seconds if people do just want to take a picture. Any. Cool. That's it.

Great. Okay, feel free to stop sharing your slides because we are going to transition into our Q and A portion. I know we already have a few questions that have come in through the chat. So Coleman, if you would like to start by unmuting yourself and asking your question, feel free to kick things off.

Thanks, Caitlin. And first of all, thanks Brandon for walking through the slides in the deck with us. It was really, really helpful. Earlier in your presentation, you mentioned essentially cohort analysis as the maturation of kind of the traditional SaaS metrics. And I was wondering if you had any tips or tricks or insight to businesses selecting cohorts that are impactful. Naturally it's going to be specific either to an industry or into an individual use case, but just kind of generalities on those of us that might think about places to look or just kind of thinking about that in a different way. Yeah, so I think some of the segments that I outlined I would encourage everybody to track. I think geography is a great one. I think customer size is a great one. Industry is a great one. You know, I think this is something that folks are going to need to be nimble with. Right. I would start with measuring a certain set and then, you know, from then on, you know, you might have to change that over time. Like I like to joke, even at battery, you know, we do all this analysis on, you know, what, what, what sectors are we investing in and which ones are we Are we missing? And when I started my career I did this whole analysis of like what our Pearson of firms were investing in and there was a category that we're tracking over time called mobile. And right. Like that's so like anachronistic today. Right. Like it's so crazy like you know, mobile is, everything's mobile. What's not mobile Today every, every SaaS company is a mobile app. And so you'll find that in the course of your business too. Right over the ten year history of your company you'll start tracking a segment and it'll be really just some product mix or something and something will change. So, so you've got to be nimble and just you know, hypothesize constantly roll out different things like try to keep your data scheme as, as flexible as possible. And for the tracking these things, the most important thing I would say to be, is to be consistent. As long as you're consistent about what your segments are and you know like what you're measuring and you can say I know this will be a discrete set of companies, customers that we're trying to sign going forward, you'll be okay. Where you end up falling into trouble is when you don't have a real consistent definition and you know, things can kind of fit into multiple baskets and it can kind of obfuscate, you know, which segments are actually doing well. So best advice is just set a definition, keep it and then discard it if it's, you know, it doesn't seem like it's useful and really telling you something about the business. Super helpful, thank you. Yeah, great.

We have a question from Sterling if you would like to unmute yourself and ask.

Yeah, thanks Brandon for the presentation by the way. It was really helpful. When you were talking about the cohort analysis, one of the things that popped to mind you were we're talking a lot about kind of like annuities and subscriptions. If you have a usage based component to your revenue source in addition to your subscription revenue line item, does that change how you look at that cohort analysis or the insights you can glean from it? Yes. You'll notice when we're talking about the realize ltv, it was just realized gross profit which extends across subscription revenue and any other type of revenue you have. We have a lot of companies in our portfolio that have like an embedded fintech component to them have payments or just have sort of usage centric models. And so I actually think like this is a better way to think about, to think about businesses precisely for that reason, Sterling, if you're looking at a usage based model and you're only caring about just strictly like the revenue retention cohort, like it's going to bump around every month, it's going to look very odd if you look at it from more like a cumulative like realized, like LTV realized gross profit of a customer. I think it's just a much more instructive way to look at a company where like the revenue line item, you know, month to month might fluctuate a bit. So I mean, frankly I would do both. Right. I think you do want to understand like what is our like contracted revenue and how is that looking over time? Because if that, if that base isn't sticky, right, if that, you know, I don't know, 12 months later, you know, you've got 60% net retention on, on just that piece or 60% gross retention on just that piece, you know, it's probably instructive and helps you think about the business. But when you're thinking about the profitability of, of a customer or profitability of a segment, which for all of us right now, right, we're thinking of cash so much like I think you bring all that into this.

We have a few questions from Ray, so if you would like to unmute yourself and ask, feel free to do so.

Yeah, Brandon, I guess my first question is usage base is a very popular new pricing model that's evolving very quickly. The revenue generated from there, which is variable in nature, ARR or not ARR. And specifically then how does that impact things like CAC payback period and CAC ratio and sales efficiency calculations. You know, I've gone back and forth on this, Ray. You know, I used to be an ARR purist, but I think I'm less so these days. I think ultimately we can, you know, we should determine like what we want to use for language. And you know, I would encourage, you know, for folks in like fundraising materials for example, or board materials, like just make it very clear exactly how you're defining everything that you, that you use. But ultimately, like I don't think companies should be penalized for having significant usage based models or you're having embedded again embedded fintech or payments based revenue streams. I think these are all things that grow the potential TAM of a business, grow the profitability of a customer. And so I don't like having like something in our language that would detract from that. Right. I think we should be, we should be calling like anything that contributes to like ltv, like I think is beautiful I would just try to, I think when I hear that kind of question, I think about you just make sure folks are aware of. If you're talking about run rate and not recurring revenue, that's fine, but just, you know, call it out as such. Just a follow up to that. I don't want to monopolize. But if there's no standard definition, how do you benchmark yourself against external expectations? If battery has one definition and Bessemer has another, how do you benchmark good, better, best? You know, it's becoming a lot harder. I think it's just becoming a lot more difficult. Right when there was in the metric monolith era, the single playbook era, it was a lot easier to do that, you know, cross company benchmarking. And it's become a lot, a lot trickier these days. I. So we frankly don't do nearly as much of it as I think as we used to. You know what we talk about, we talk about, hey, here's a company that we might invest in. They've got these few segments that are working out really well. Like they're, they're, you know, this product or this, you know, this industry. Look at how quickly they're paying back their cac. Look at the retention in this segment. We do a lot of talking about that and we do a lot less talking about, you know, things that are, I think more kind of global benchmarking. So and I think it's really like, it's a back to basics way of looking at a business, right? Like, you know, where, you know, is this segment profitable for you? Is it, is this profitable segment in a big potential market? Right? I think a lot more about that than I do about like good, better, best frameworks personally. Thank you.

We have a question from Jessica if you want to unmute yourself.

Hey Brandon, thank you so much. This is really, really awesome. Appreciate it. Question for you and you may not be able to answer, so I appreciate that. But given the volume of data that will drive all these insights in this cloud world, do you have a point of view on which tools are better suited for this type of analysis in a cloud world? I know there's so many out there. Tableau Alteryx thoughts about Sigma do you have a point of view and any that are more suited to handle this type of analytics in the long term? Yeah, well, so I would politely give a shout out to our portfolio company, Naxio. This is actually one of the largest investments we had ever made. At the time of this investment, it was the combination of two businesses SaaS Optics and ChargePoint. They do a great job of helping people just understand the SaaS metrics in their business and how their company is operating. So I'd encourage you to check them out. I also think I would actually encourage folks, you know, it's very hard to do this late in the game, right? If you are a 50 million ARR company and you're just starting to think about sort of instrumenting all of this, it's really tricky. I mean this is kind of what I do for a living, right? I work with like growth stage companies and I look at their data. I'm like, oh shoot, I'm not going to be able to make sense of this. And so I kind of just go in and have to do it. I think it is a smart thing to bring on somebody who's like a biz ops type person. Maybe this is somebody who has a year or two in venture or a year to consulting. Kind of a hybrid athlete doing some FP and a work, maybe some special projects work, some chief of staff type work. I think you actually bring this person in pretty early and give the person the task of like just get all of our data lined up and so that we can kind of understand our business and, and that person will have tons of stuff to do. Kind of just like a general business athlete that's working with you. So that's what I'd encourage. I'd say there's, there's a lot of software solutions out there that will help you sort of organize all the data that you know, intuit or whatever is spitting out at you. But then I would also say like, it's a good, there's good rationale for a hire here.

Thank you. If you have more questions, keep them coming. We do. I know we're at time, but we have the ability to go a little bit over if you do have more questions. One question that came in. Companies are having to make hard decisions regarding layoffs currently. What metrics do you turn to to make these hard decisions?

So I think ARR per employee is a pretty good guiding light for businesses. I would say it's a lot less useful and a lot less helpful below say like 20 million ARR your ARR per employee when you know you're just getting started is going to look really bad, right? Like you don't have a lot of revenue and you just need a certain amount of employees to build a product. Right. So I wouldn't, I wouldn't like be comping yourself to like public companies for ir per employee. But I do think it's the right guiding light. Right? Like, ultimately, I mean, it's actually kind of rational think through, right, like, what's the total aid and cost of an employee? And then you need your revenue to exceed that, right? With some buffer for, you know, whatever cloud expenses, any SaaS, apps that you're paying for. And that's like, that's the basic. That's the basic math. And so I think using that as a guiding light of like, well, clearly we need to get into like, some area where we've got eyesight to being able to break even. Like, I think that's the right. The right framework to think about. Beyond that, what I would say is my advice on, like, right, sizing a company or how to think about layoffs. It's very company specific. The primary thing that we think about is actually just like, is Runway and the next inflection point in a business. For some people, that inflection point can just be. Can be a number, right? It's. It's a million ARR or it's 10 million ARR. And like, we just need to be able to get to that number. For some of your businesses, maybe it's, it's some kind of technical hurdle or milestone. But for all businesses, we all have some milestone where in your head you're like, oh, if I just, if I hit this, like, my business will be worth a lot more. But until that point, like, it's. We're kind of in this little bit of a no man zone. No. Kind of a no fly zone. And so my advice for you is think about when that next milestone is and make sure you've got cash to get to that point and some, and some buffer beyond where I think like, 18 months is probably a good rule of thumb for people right now. And so I would say that that's what sort of shapes the conversation for me. It's both you think about ARR for employee, if you're at a stage of business for which that would be relevant metric for you. And then I think about, like, well, how much Runway do I need to get to. To get to that inflection point where, you know, reasonable minds, you know, our team, our investors agree, like, actually a lot of values being creative. We can just get to this and make sure you can get to that with some, with some effort.

Great. We have a question from, or a few questions from Tova, if you would like to unmute yourself and ask. Feel free.

Brandon, thanks so much. This is super helpful. And I'll keep it brief. They both sort of fit into the bucket of as an early stage company with a usage based component, this is like really aligned with what we've been working on building internally. But we're like small and we're nimble and we are tiny and so really just looking for any insight, advice, lessons learned, you can share about where to focus time and energy in order to set up the foundation for success with this, this sort of style of cohort based reporting and analytics and decision making. That's sort of the primary thing. The secondary is any way to, to align that with some of the traditional SaaS metrics that some of the investors who we're talking to are looking for. Because it's tricky on a tight team to be managing both things and some folks really are looking for that or old school SaaS metrics for sure.

So I think the first thing is actually like if you're very, really early stage, right. Some of the folks on the line are like sub 10 people, right? It's actually, it's a little bit of a blessing for something like this because you can actually just start building this in today, right? It's a way, way easier to start with this than it is, you know, if you're a 50 million, 100 million company and you actually now want to start doing core economics, like that's like a big, it's like, it's kind of a big, a big push. So good news is like you can get started with it and get going on it in terms of like aligning it with investor expectations. So what I would say is, right, investors are individuals. Everybody's gonna look at a business in their own way and they're gonna want to analyze data in a certain way. And so like kind of just is the way of the world. I mean I, I like thinking in this way. I, I will analyze all the companies that we see. I try to analyze them in this way. But if you talk to other people like they, they might not, they might not get this. And so you kind of have to like, you know, form the, you know, the way that you're always presenting data in like a, a data room or in a, in a pitch deck like to those expectations. But for your own internal way of thinking about the business, like I think this way of doing it is just, is superior and just gives you more telemetry into what's actually going on with your company. In terms of the other aspect of your question is like, what should I be focusing on? And I'm sub 10 people I don't, I don't have cohorts to, to look at. I've got, you know, six customers or something like that. The biggest piece of advice I would give is, you know, growth in many ways is like a function of capital. Right. If, if everybody on this, on this call had $100 million in the bank right now, you will grow faster next year. I, I guarantee it. Right. But that doesn't necessarily mean you're a better business. Right. It just means you have more capital to spend. The things that you can control that aren't capital related are like the experience of your customers. So if you have five or six customers, like, make them love your company, make them love your product. When we do seed stage investing, the biggest thing is we will talk to those customers at a certain point far along in the process, and if they're pounding the table and saying, hey, Brandon, you're an idiot if you don't invest, if I had a dollar, I would invest. When you get that feeling from customers, that's what gets me excited. And so that's not a metric thing, that's qualitative thing. But solve for that. If you just have big raging fans in your current customer base are super excited about you do things that don't scale, give them a white glove service, I would solve for that above anything else.

Thanks. Super helpful.

All right, this is our last call for questions. You know, we're already 10 minutes over, so thank you all for hanging on. All right, well, thank you, Brandon, for your insights and thank you everyone for joining us. This has been super helpful. We really appreciate it so much. We hope you enjoyed Azura reminder. We will see you next week also at 10am Pacific and every week after next week, we will look into the importance of OS communities and this will be led by GitLab. So look forward to seeing you next week.

Hi, thanks.