Jason M. Lemkin argues that public SaaS companies are pressured by markets to prioritize efficiency and profitability, which squeezes budgets for R&D and engineering headcount. He advises staying private longer to continue investing in product development, and cites examples (Salesforce margins, Palantir pre-IPO metrics) to show companies that trimmed investment to hit public-market expectations.
I think we've made a terrible pact with the devil in public SaaS companies. A terrible pact, which is the markets told everyone they had to get efficient. But there's no money for R and D. There's no money for R and D. How can you. If Salesforce is going to get to 40%, it's coming up on 40% margins. Where's the money for engineers? Where's the money for sales? Right. Engineering headcount is. I don't know if it's down sales. Like where is the money? And so I would stay private as long as I could. So I keep investing in the product. And then when I finally had to find I've got to be profitable. But no one cares if you're profitable six years before your ipo. They care if you're there when you ipo. Palantir ran that playbook. Their metrics were atrocious. Before the IPO, they weren't even SaaS. They had like 20% gross margins. Forget about profits.
