The Era of HyperFunctional SaaS is Here l SaaStr CEO and Founder Jason Lemkin
Jason M. Lemkin argues that B2B SaaS has entered an era of "hyperfunctional" expectations: AI and automation are now table stakes, buyers expect platforms that replace manual work and stitch unstructured data into searchable, promptable interfaces, and companies must deliver more functionality (often via multi-product strategies) while becoming radically more efficient. He cites sector growth (Gartner: SaaS spend +20%), company examples (Shopify, Klaviyo, Monday, Rubrik, Zscaler), and prescribes building AI parity, automating onboarding/support, pursuing multi-product roadmaps earlier, and hiring fewer but higher-performing people. The core diagnosis: slowed growth usually signals a fall from product-market fit rather than only macro downturns.
Chapters
The good news is you have to do what everyone else is doing. AI. There's no excuses anymore. Your product has to be better. But the good news is the third point, you have to do it with less money. That's the good news. You get to do all build more software. It has to be better and you have to do it for less money. Which we'll talk about. Not, not necessarily in the early stages but I just what I call it radical efficiency. All the public companies are radically more efficient. I wanted to I hope you guys were able to hear the last one last week it was with Lauren Paddleford who was CEO of Slice. I thought it was it ended up being a very informal deep dive on sales and really just running a vertical SaaS company. He's here of Slice which has crossed a hundred million in revenue. But I did this opener on the new era of hyper functional SaaS and I tried to synthesize all the things I've been thinking about and learning for the last year from AI to what's going on in public multiples to why some SaaS companies that are unicorns or at 100250 million are not growing at all today. Why so many folks are grouchy on LinkedIn I don't know if anyone's noticed, but a lot of the revenue folks we know are really grouchy on link what's going on and there's a lot of things going on which I want to get to but what I I it's not just AI in it's not that there's no money out there. If you look at Gartner anyone. SAS spending overall is accelerating. It's up 20% this year, which is more than last year on both the and of course an absolute basis. So it's not that there's not money out there but and it's not just AI is great but in B2B sticking an AI in your website doesn't magically change a lot of business products. In fact, a lot of the public leaders aren't even all that AI. If we look at the SAS IPOs we've had, there's only been three since 2021. Only three IPOs all time low. The three IPOs have been Klaviyo, which is marketing and more for E commerce for Shopify. There's a little bit of AI there, but not all that much. There's one stream which is a great one. We'll do more on that, a pretty obscure one for CFOs that IPO'd just recently at 500 million in AR growing almost 40%. They said our CFOs are scared of AI. And there's Rubrik, which is a cyber security leader which is partially fueled by AI. But if you actually listen to so many of the leaders in cybersecurity, AI is important, but it's not fueling a lot of their budget. In some cases it is, in some cases it is. But so what's going on and I thought all of it is just the bar. The last couple years have gone. Has gone up radically. It's gone up radically. Buyers are expecting much more of products. AI is accelerating this. Buyers for a variety of reasons are probably over indexing on budget but they want their platform to do everything. They don't want 200 point solutions anymore. So the bar has just gone up on all of us. And I want to talk about how and why because it's hard. Because as hard as we all had to work two years ago, we actually all have to work much harder today to earn the same dollar. And a lot of folks don't want to do that. A lot of folks want to quit. A lot of folks complain about it, a lot of folks. But the truth is the bar goes up every four to five years. The world changes in the world is changing. We you guys, we all have to either step up or step aside and that and but I wanted to rather than just talk about simple platoons, I want to dig into what that means today. So just to highlight, I put this together last month. It's still pretty accurate but I did the one thing before we talk about hyper functional SaaS. I want to kick everybody in the arse who talking about a downturn. I can't attend one more meeting, hear one more Woe is me Investor update. Read one more LinkedIn post about how we're in this the the largest downturn since the 1700s in Sast and cloud. We're not. In fact I go on LinkedIn now and there's don't want to hear any more for that person. There's like a little function you can get I do that one when I hear these Debbie Downers because it's not that they're wrong. Listen, if you talk to any VC out there they will tell you a third a half of their investments that were growing at epic rates in 2021 are barely growing today. Are barely growing today. But not all of them. And so I've talked about this a little before. I broke it into two sides just to simplify this for folks and Then we'll dig into more. Overall cloud spend still up 20% non tech and this is where it's confusing. Non tech remains very strong. Toast up 29% at a billion and a half in ARR restaurants are doing. There are a few challenges, inflation and others, but restaurants are doing pretty well. Monday.com sort of workflow management, CRM and more for non tech folks. Over 70% of Monday's customers are not tech. They're selling to churches and normal businesses. They're growing 34% in a billion in AR while Asana which mostly sells to tech, if you see on the right is only growing 10%. Okay, Shopify has re accelerated Shopify at almost 10 billion. Over 8 billion ARR is growing 21%. That means it's adding 1.6 billion of new revenue per year. So if you're vaguely in that space and you're not growing, it's you. It's a you problem. How do they say this on TikTok? Help me out. It's a you thing. It's a whatever that slightly toxic phrase is. Because Shopify is adding 1.6 billion. Go grab a little bit Klaviyo. Andrew Bielecki we just put this up on YouTube in this aster blogs you have Klaviyo. You might not know about Klaviyo but Klaviyo is the number one partner in the Shopify ecosystem. They are the HubSpot of Shopify. They're at almost a billion in revenue, growing 35%. And the first question I asked Andrew when I interviewed him on stage a couple weeks ago was are we in a downturn? And he's a great guy, fairly serious. He just laughed. He said there's no downturn in our space. So listen Sam Sorrow, we're going to do a great podcast with the CEO soon. SaaS for fleet management for trucks and more growing 36% at 1.26 billion architecture. So non tech is strong. We know AI is strong. Is there a bubble? Yes. Does it matter? Who knows? But Google, Cloud, Azure, GitLab benefiting just a little bit on fire. And we talked about security compliance. There was no downturn in security compliance. Is there some pressure? Yes, but Zscaler, Crowdstrike, Rubrik, all of these folks security compliance. There is no downturn but it is on the right. And then I want to dig into what I mean. But Salesforce is profoundly struggling for the first. It's fallen to single digit growth for the first time and it's complicated. Folks are still building an epic amount of software fueled by AI. We see GitLab up 30%. That's a derivative of building more software. But Mongo's down 13%. Mongo, which is perhaps the leading standalone public database platform, they're in so many workflows, they're seeing pressure. Folks are reducing spend. But interestingly Mongo said just a couple weeks ago, there's pressure on workflows. Folks are trying to spend less per application. But net new customers are growing just as fast as ever. Net new customers are growing just as fast as ever. Elastic and Asana similar. So listen, it's just a new normal. And the tough part for folks on the right, which is probably folks like you, is you have to do more. You have to maybe either sell to different customers, you have to build more software, you have to be more AI, you have to be hyper functional, which we'll talk about and let me summarize it and then go into a little bit of a deep dive. This is how, this is what I synthesizing all the startups I work with talk to have invested in a know and it's tough. And this is tough. This is a B2B slant, a SaaS slant of everything we're reading in the media, number one. And this is tough one for folks. Even today I think most of folks have internalized this. But AI is now table stakes. It's table stakes. 18 months ago we didn't know what AI would do to a lot of SaaS applicants. Yeah, I can make funny videos and avatars and stuff. But what would it mean for B2B? What would it mean for automating support for automating sales, for automating marketing? Now everyone has it. Everyone has it. A lot of it isn't good, some of it's great, some of it's emerging, but it's table stakes. And what this, why is this hyper functional? If you have 10 engineers, 50, 100 or 150, you may well need 20 more folks to build this AI stuff to make it any good tough. I have empathy, don't get me wrong, but when everybody has it, you got to do it. And we'll. I'll show you an example on SupportNext. It's table stakes and two, the product has to be much better for it customers. AI has meant fair or not, true or not. In some cases the customers are expecting so much more from us. They're expecting so much more. They're expecting everything to do more. They're expecting onboarding to be automated, they're expecting the emails to Be automated, they're expecting outreach to be automated, they're expecting everything to be pop pre populated. Your product has to probably be two to five times better than 24 months ago. It's stressful, but it's too late. And not only that, your competitors are all promising it. Your competitors are promising AI and automation will do all this for them. So if you can't step up, you're going to lose deals. I see it all the time across my own investment portfolio. I see folks losing deals again and again when a competitor will come in and make a lot of a promises that are 70% true, 50% true, 30% true. But you're not at parody or you won't make that commitment. You just lose the deal. You lose the deal. Okay, the good news is AI, you have to do what everyone else is doing. AI, there's no excuses anymore. Your product has to be better. But the good news is the third point, you have to do it with less money. That's the good news. You get to do all build more software. It has to be better and you have to do it for less money. Which we'll talk about. Not, not necessarily in the early stages, but I just what I call it radical efficiency. All the public companies are radically more efficient than two, three years ago. So at first everyone started to get fitter. They started to get fitter, more profitable in 2021 when the market forced us to. But I don't think the products got any better. In fact, they might have gotten worse. We just did layoffs in 2022, right? Everyone got. There were no layoffs in 2020 and everyone's going to layoff. And that's how we got efficient at first. We just laid people off. But that doesn't build better product. In fact, the leaders are all rehiring quite a bit, just not at the same pace as 2021. They're rehiring because it's got to get better. But you've got to find a way to make your dollar go 50% further and build 100% more software. That's not easy. Automation everywhere. It's not just AI. It's not just. It is. Everyone wants things to be automated. I shouldn't have to spend a month onboarding, I shouldn't have to spend figure all this stuff out myself. AI is in SaaS is automation. In many cases it can be automation on steroids, but it should be everywhere. If your product is full of manual work for your customers, they're going to leave for one that automates everything. For them they're going to leave for one that automates everyone for them. And then two other points I want to dig into as much time as because this is like tough news. This is I know you've probably internalized a lot of this but it's tough, it's harder. It's not just it's harder because you have to build better software. The last two points Multi product has become the new normal and I think I have a post on this coming out in the next week or two. I've written quite a few in the queue because I have so much to say these days. But when I'm looking across CEOs that I know and my own portfolio of 30 or 40 bigger investments, what's the number one real issue for SaaS companies today? The number one issue is not AI or change or even that there's now 200 competitors in their space that there wasn't a year ago. This is not the number one issue. The number one issue I'm seeing from 5 million to 500 million in the companies I've invested in over the last 11 years is being too slow to go multi product being too slow. YC is great focus, focus but and I love YC but YC the average startups at 5,000, 10,000, 20,000. Mr. Of course in the early days you've got to focus but what I'm seeing again and again is that these days as the products have to be better and as there is more comp even more competition is folks are mis sequencing this and they are slowing down somewhere between 10 and 500 million in ARR because they never developed a real second product. They never developed a real one and it's not enough. They exhaust their tam, they exhaust their buyer and we'll dig into this a little bit but the most important thing is that your second product, your multi product, you do it on time before you're before your initial market decays too much and that the second one has to be bigger. It has to be bigger. I've said this before but I don't think I can say it enough times. Building another multi feature is not multi product. CRM is bigger for HubSpot today than marketing automation. If you don't know this CRM which didn't exist a decade ago, it is now bigger than the core HubSpot product of marketomy. It has to be bigger or it won't contribute enough growth. If you're at 10 million, 50 million, let's call it a hundred million to keep it simple. If you're at a hundred million, growing 30%, which isn't enough to IPO unfortunately, but you're finally got got it, finally got a second product. But that product at best will achieve a hundred million in five years. It won't do enough. The second product has to be bigger than the first and it's tough and you have to sequence it properly. Too early, you'll burn out the team and you'll burn out the market. But too late and growth will decay. You have to layer these products on top of each other. And the last one is which is tough. This is the one that I think folks are struggling with on LinkedIn the most. Even if they don't realize it. Customers are demanding more than just another point solution. There is finally massive point solution fatigue. I just wrote up Zscaler today on Sastra's five interesting learnings, if you read it. And Zscaler is seeing no downturn at two and a half billion in revenue in cybersecurity. But it is harder out there. And what they said is, listen, one of the things we're most benefiting from is at this point Zscaler is a full platform and people just aren't exhausted of all these point solutions. And it is tough. And of course you have to start us. Very few of us get five years in isolation to build a massive platform and then hit the market. We almost all start as point solutions, but it's tough because customers do want their platforms to do more. And I think this has been accentuated by the scrutiny on buy from procurement, from CIOs, from others. Companies have wanted to in some ways irrationally, in some ways rationally cut their SaaS spend and they're pushing their existing vendors to do more. And you've got to find a way to be a more of a platform. You cannot last as a point solution. In many cases it's just hard. So I call this hyper functional. We have to do it all. We can't see a point solution as long we have to go multi product earlier. We have to automate everything. We have to be more efficient, doing with less. The product has to be better than AI is table stakes. And I know it's hard, but if we want to do great things, this is the bar for the next five years. So a couple things to dig in on. I used this table stakes notion I pulled together a couple weeks ago. Zendesk Salesforce and Intercoms support products, right? We all know Zendesk is for support. Many of us have used Intercom we certainly have at Saster in the past. You might not realize that Salesforce the support post sales is actually bigger than CRM. It's actually a bigger cloud than CRM. And look at what do you see the same stuff. AI for Zendesk is AI First Intercom all AI from Owen and team Marc Benioff all here. Okay. If you're a customer, I don't even know if you can tell the difference unless you do a bake off. So hopefully you're past this at this point in the year, at this point in the cycle. But no more complaints about AI. No more complaints about how hard it is to build. No more complaints that it doesn't work well. No more complaints that it doesn't change your space. Everyone's if Salesforce is doing it and Zendesk and Intercom doing it, it's parody. You have to find a way to do it even if you don't have any more money, even if you don't have any more engineers. It's life. It is parody. And this is what's going to happen. It's already happened in B2B is I do not believe in core B2B that AI going to this point now and certainly next year is a differentiator your implementation maybe you might be the best. But how everyone is going to have pricing page check the box function app feature parody on everything that is a toy and B2B everyone. So you better if you don't. If you haven't built it yet, find a way. Okay. And so next thing that I think is even harder is that customers expectations they might have even gone down in 2020 when we were all locked up at home. We might have been oh my God. If I can just talk to people on Zoom or just spool up a call center without humans. It was great. Now the bar is way up in in AI is the accelerant here and what is it it's taught customers to expect more from us, which is tough. I think that's number one. If you're not in. If you are in any way involved in post sales or support, you will see this first bullet point. Viscerally everyone in post sales, Salesforce, Intercom, Zendesk Gorgis on and on. They are promising you can eliminate 30 to 50% of your humans in support with AI. They're promising it today. They're promising it today. Sales is going to is beginning to promise this. Even Marc Benioff is beginning to promise that you can eliminate portions of your sales team with AI Folks Are prom marketing I actually think is struggling more than social media suspects. But marketing is promising. You can eliminate parts of your marketing team with AI there. So customers are expecting this. They're expecting to literally replace humans efficiently with AI. If your product can't do it, if your product can't do it, they're not going to buy. The most recent investment I made is a company called mango mint dot com. They're coming up on 20 million in ARR growing 100% with 110% NRR from SMBs in a very small space, actually in a very small and crowded space for salon spa software. Why is it growing so quickly? Right. In a small space? It does a lot of cool things. The software does automation really well. It's really slick. It's a next generation product. But it actually lets you automate away your front end of your office where you can't find anybody to work and automate away your back end. It's getting, it's dealing with the fact that 34, 50% of the workforce in these small businesses is gone. It's making that promise and it's earning that. So this is what your customers are looking for, not an ROI calculator or smidge. Whereas they want to get rid of humans with your product. Can you do it? They're expecting it and your competitors are promising it the next one. And this is more subtle, but I think this is a threat to a lot of B2B products. This is why Box is so excited about AI. It's why we're trying to figure out what's going on with leaders like Perplexity and others. But AI has taught B2B customers to expect that all unstructured data will be instantly structured and searchable. They're expecting it. And the fact that if your data cannot be found, if you are stuck in dated, painful dashboards, if you do not find a way, going to the next point, that your product can more or less work like a plain English prompt to extract data. I think you're going to fall behind. I think you're going to fall behind. Obviously we see this in a lot of folks trying to apply more AI to BI business intelligence so that I don't need an engineer anymore, that a plain English prompt will finally get me BI I need. But they're expecting it from every application. Okay. This fourth one I think is the most important for SMB and mid market. I've done, I've worked with and invested in a lot of folks in the SMB space. And if you guys are in SMB or the bottom of mid market. You know that for complex products, actually one of the biggest problems is onboarding. SMBs have no time and they have no people and they have no IT department and they have no one to implement anything. So if they actually make the time to buy the product, the good news is they might buy that day. Right? Owners don't have time to to do massive bake offs or to spend months. But the problem is if you don't get them onboarded that day, they're often disappear. They often disappear. And for many folks I've worked with, the goal is, hey, can we get these SMBs onboarded in the first week, the first 15 days, the first 30 days. That's been a traditional goal for SMBs. Now with automation, customers are expecting it to be automated. When I end the zoom, when I end the meeting, they're expecting it even when it didn't seem possible. This is what AI is expecting. Right? I'll give you a small example. So I invested in, I'm on the board of a company called Owner, which is like a marketing platform for restaurants. We've done a lot of fun stuff with their CRO and some with their CEO. They're coming up on 30 million in revenue, growing triple digits, growing double digits month. It's fast growth. But onboarding is hard in their space. I know this sounds niche, but it's an example which is with restaurants. One of the biggest headaches, I know it sounds a little silly is the menu. Because you've got to figure out a way to get a menu which is often not online for a tiny little restaurant. How do you get that? And it changes all the time. How do you get that dynamically input in the app? The buyer is not going to input that entire menu themselves. And the classic way and, and it's a meta issue in the space for Toast and others is behind the scenes, people are doing it. Whether they're doing it at the restaurant or whether the vendor is doing it, they're doing it now. Customers just expect it to be done automatically. They don't care. AI will do it. AI will do it. So this whole cheat, this whole thing of SMBs tolerating weeks to go live, I think is dying right now. So I would challenge you if that's you think about how you can eliminate onboarding in your app. Even if you think it's impossible, even if you think it can't be done, even if your team is telling you it can't be done, your engineering team is telling you it can't be done. Someone's going to find a way, your competitor is going to find a way to reboot your space so that the automation is instant. They're going to take all the customers. At least for small businesses. Enterprises have time for deployments. Small businesses don't. And then the final point here is just this is just tough. Core platforms are. HubSpot was early here of doing more stuff but they're all going to do the work of 20 add ons and point solutions. And the one that I've talked about a little bit is at first I thought it was crazy was watching and learning from what Parker Conrad was doing at Rippling. And you can watch his presentation from SAS Europe about a year ago on YouTube. It's pretty great. It's on building. I think they had 20 products then, they have 50 products today. And it's. That's great. But we haven't all raised a billion and a half dollars. We can't all build 50 products like RIPP. We don't have a billion and a half dollars. But. But we might have to do some of this. We might all have to build more products, more functionality early because that's what the customers are expecting. They don't want these 20 products anymore. They're being promised all of this. And if Rippling is out there and has 50 solutions and maybe I'm not all 50 are great. Nothing against Rippling, but probably some of the 50 products they have are better than others. That's the reality. But I'm already on the Rippling platform. It's pretty compelling. When Rippling can ship another 10 products per year, it's pretty compelling. When we look at Datadog a little bit later of how compelling that platform is, do people now think Datadog is way too expensive? Yeah, you see those complaints. But it does everything. It does everything and people love the core product. Why not buy more from them? And the final point here, and then I'll hit the next one is just AI has taught everyone this is easy. The Internet has social media has the Wall Street Journal. Everyone thinks that it's this. It's great that Sam Altman's talking about a one person's going to build a billion dollar company and there's positives and negatives in that. But everyone's talking their game. It everyone in the AI industry is talking about how easy it is. Everyone has an AI SDR app that in 30 seconds will get you a million qualified leads. They're all talking about that. All the support folks we Talked about Zendesk, Salesforce, Gorgeous, Intercom, they're all promising you can eliminate 50 to 60% of your support team overnight. Right or wrong. Customers now expect this. When the leading vendors in the world and the leading luminaries in the world are all telling you that AI makes this all easy, customers are going to demand it. They've heard it too many times. Now they believe it. Now they believe it and they're demanding it. Okay, just a couple few other things. I just wanted to highlight this point. I think every most people get this now but on this thing of hyper functionality and hyper you have to be hyper functional, you have to be multi product and maybe have 50 products like rippling and achieve AI parity and do it all, but you have to do it with less money. And the mistake that founders are still making today, even at this point in the cycle is they think it's an excuse for slow growth. That like profitability comes above growth. Whoever data is, you look at Saster, Maritech, which we've written up, Bessemer, whomever, everyone that analyzes the data, they all come to the same conclusion. Jam and ball, they all come to the same conclusion. If you crunch the data from all the public SaaS companies, efficiency matters, state did not matter in 2021. No one cared how much money you were burning in 2021. Boy, they care today. Wall street cares and they care for your cash burn and they also now care for your equity burn, your stock burn which will run out of time but becomes a big stressor later. You just can't issue that much equity anymore. Zoom says they're almost stopping issuing follow because Wall street won't let them do it. But you also have to grow at top tier rates. You don't get a pass on growth for efficiency. And I just pulled up the Monday example here. Monday again is growing almost 40% at a billion in ARR. But look how their efficiency changed in 2020 when no one cared minus 25% free cash flow. Then they started to care. Then in 2021 they broke even into 2022, 23. Now they're at 28% free cash flow and going up. 28 cents out of each dollar is going to the bank. That is radical change. Is Monday growing quite as fast as it was when the Monday when the markets were bananas? No, but it is still growing at top 5% rates and that's why it's one of the top plays. So you got to do it all. I know it's not tough. It just at the end of the day. It means we have to hire fewer better people. That's the answer. Fewer better people. Monday did go through a layoff to get to this efficiency. I think it was their first real one and it was tough. And co CEO Ron and I chatted about it last year at sas. Trania was a great one to watch. They did go through layoffs. It was to do to reset. But then pretty quickly they rehired. Here's the thing, they just rehired slower than they were growing. If they're growing 34% at a billion, if you just increase your headcount spend 24%, you will get more profitable. Even 30% at their number, you'll get a little bit more profit this year by growing headcount less than revenue. So we've been taught unicorn math in the last few years, taught us to grow revenue faster than headcount, faster than revenue. And maybe you can do that for a little while when you're venture backed, but at some point you gotta pay the piper and headcount just has to grow slow, slower than growth. You have to get the efficiency that is promised by software. And if you want to back into it. I wrote this math up on Sasser while ago. I don't think enough people internalize it because it's pretty specific. But this is one to think about. When I look at all the companies I invested at years ago that are now at 200 million or beyond and there's a group of them now, I can watch them and I can look at other ones that I know where I know the CEOs well or others. You basically gotta have 700 people. When you get to 200 million ar. And that may sound, hey, what does that mean for me? I'm not at 200 million in AR today. Roll it back to where you are. You can bridge some of the gap with capital. But at the end of the day, to be efficient to survive in today's market, you're going to have to have 700. Does that mean 350 people at 100 million AR, does that mean 175 at 50? Maybe, maybe you can afford more if you've got folks in, in Eastern Europe or Latin America and others. But this is the rough math to think about how many folks you're going to be able to afford to make it happen. Okay, just a couple more things that I see as part of this hyper functionality. I just wanted to highlight if you aren't seeing this, because I'm seeing this everywhere, it's not just AI it's again, it's automation everywhere that I think SaaS through 2023, 2020 was workflow and dashboards. That was all we were doing in SaaS. Workflow and dashboards. Build workflow to connect some data, build workflow through triggers, through emails, and then the boss gets a dashboard. Okay, that worked pretty well, I think, from the 70s until 2023 or so. But automation, AI is just high. Is automation on steroids? And I grabbed an example here from Gorgeous, which has about almost 20,000 Shopify customers for support just because I'm on the board. But Intercom, Zendesk, Salesforce, they're all the same. Just this is. Look at this flow on this image. This is when you sign up, you go from help desk to automate to buying. Okay, automation is this middle piece. And they're picking. What percent of support do you want to automate? 20%, 30%, 50%, 80%. You're picking automation. This is what customers are expecting to dial in the amount of automation that they want one way or another. You're probably gonna have to do this in your product as well. Is it going to be the exact same way as support? No. But think about this. People want a slider, a dialogue. This is the AI promise that is still, no matter what the media says, it's still hard to deliver. They want to dial a slider in every app where I can dial up how much of human LED functions will now be automated. This is what everyone on the Internet is promising. This is what OpenAI is promising at 150 billion valuations. This is what everyone's promising one way or another, that we can automate on a slider. This amount, you're going to have to build it. And I do think the AI bubble is going to pop. I think everyone thinks this just because the amount of spend going into AI can't increase forever or we'll just run out of gdp. There just isn't enough money in our entire economy to allow AI spend to increase at the rate it is today. So the bubble's gonna pop and so be it. But customers are gonna expect this forever, this level of automation. So my challenge to you, I'm sure you've seen it in the markets, but if you're not thinking about, okay, if what can we automate more and how can we accelerate this? And because there's parity, beat out the competition here, because customers are just gonna expect that, they're not gonna tolerate a lack of automation anymore anyhow, this point we hit. So I'm just Gonna say it again because I think it's the number one issue as you scale. So I'm just gonna say it differently as per the slide, again, going to the very beginning, a lot of folks are talking about a downturn on LinkedIn. Oh my God, it's great to just grow 15 a year now. It's so hard. Blah, blah, blah, blah. But when you peel the layers back in the onion. Yeah. One, some of the reasons that they've slowed down is because they're too focused on Tech or B2B 2B for sure. But you really peel the layers back. Did they really escape the single product trap? A lot of folks complaining, I don't want to single out people, but a lot of the folks I know at 50, 100, 200 million that are seeing growth less than 20, in some cases zero. In some cases zero. Yeah, they built a feature. Yeah, they built a HubSpot integration. Yeah, they added something in, but they stayed single product for too long. I think it's the number one tactical issue that I see across my portfolio and I know it's tough. I'm only saying this between friends. I'm almost giving up on startups that have hit scale, that have not become multi product. It's almost too late. If you don't start, it takes too long. If you're at 50 million and want to develop another 50 million or a hundred million of product from your second product and you haven't even started or you're screwing around, it's all, it's not too late. If your NRR is over a hundred percent, it's never too late. But the founders better want it, you better want it. And that I've had this tough conversation with a few folks over the last month or two and I hate the tough conversations. You might surprise you. I hate them. But folks that I've seen in this pickle where they have a good product but growth has declined because they didn't build a second product in time. I just, it's like, how badly do you want it? Because building a real second product that's bigger than the first, it's not like a second startup, but it might be 20 or 30 or 40% of the work of what you've already done, you've got to want it badly or you're going to stay growing more slowly and slowly. In single product land, it's. I think it's the number one issue I see across SaaS today. Okay. And then just again, one more point. This is one I don't have all the answers to I think again, a lot of folks have seen whiplash the last 18 to 24 months when their point solution stopped selling. And some of this was budget shock. Some of this was budget shock when when everyone in 2020 and 21 added 100, 200 more sales apps and the CIO said now you got to cut 50, now you got to cut 80. So there's a lot of whiplash there in the industry. But it's not just that. It's not that we overbought apps because if they all delivered and performed, we wouldn't be seeing the whiplash now. It's that the leading vendors are doing more. And I just, I pulled two extreme examples on the right for Datadog and Canva. Even Canva, you might think, is single product at two and a half billion in ar, but it sure does a lot more than when I started using. Sure eliminates the need for about 10 or 20 other tools in my suite. So I don't have the answer here. You one way or another, you've got to probably expand beyond being a point solution faster than we had to two or three years go. Because again, customers are expecting this hyper functionality. Will they stitch together 20, 30, 40, 50 apps if they have to? Sure. If they have to. Will they do it if nothing else exists? Always when something completely changes the market, they will buy it. But right now the they're going to open up Canva and they're going to say does Canva do it or does Datadog do it? So you got to be this. You got to be this. Okay, one other, one other point which makes our jobs even harder. This one I have the last ones are challenges to step up automation. Step up do multi product, earlier automate, onboarding, have an onboarding, have an automation dial in your product. All of it. This one's just tough. I don't have the answers here, but I'm sure you've seen it. AI hasn't just raised the bar in terms of product functionality, hasn't just raised the bar in terms of what customers have expected. Slightly unexpectedly, not really unexpected, but slightly unexpectedly, it is taking categories that were sleepy and uninteresting and 100x the vendors. A couple years ago it seemed like in, in like sales engagement it was outreach, sales loft and then folks doing some of that functionality. Now there's 200 folks because of AI. There's 200 folks doing this legal. No one wanted to build a legal app. A couple years ago no one in their right mind wanted to be a legal app. Now there's hundreds and hundreds of AI based legal apps and the Contact Center. My God, when I did a lot of investment in Contact Center, Talk Desk, gorgeous front intercom, maestro qa, a lot of them and no one wanted to invest in Contact Center. It was a tiny sleepy space. Now there's 200 folks in the last YC batch that are doing bots and others to automate Contact center to automate support. It's exploded and they're all promising 10 times better functionality than exist. State versus AI. Mathematically there's no room for all these vendors. 95% of them will explode. But it just means for us, for anyone, that is pre point solution explosion. The bar has, the bar has gone up again. I think I'll leave it at that in terms of hyper functional SaaS and I'll leave it maybe the. With one more. This one I'm worried about this one I'm, I, I need help from you guys. I don't have the answers. This is what I'm spending a lot of time on, which is we have to do more. We have to be more efficient. We have to be AI first. We have to have AI parity, we have to do automation. But who's going to do the work? Who will do the work for us? Founders, I find for the most part are as driven as ever. My God, they're so driven. But what about everybody else? What about the the VPs of sales on LinkedIn that are so grouchy that they got fired or so grouchy they had to hit plan grouch? What about the marketers? What about the A's and SDRs that don't want the sales folks don't want to travel? Who's going to do the work? And this may sound like grouchy pants. I'm a little grouchy pants about instead. I just don't know how we're going to do all of it. And I'll give you two examples. And I just think this means we need to do be relentless about not lowering the bar and hiring. Be relentless about only hiring pirates and romantics. Be relentless about when we're getting tired about making the hire, just not making the hire rather than settling. Settling works worse today than ever. And I'll give you two examples. One, I just wrote up on Saster. We wanted to help folks. We all the folks that we thought were in the Bay Area that had done booth duty for the last three years at Sastrania. We identified 813 people in our database that had come to Booth Duty. And we said come to SAS Daniel, for free as our guest this year. Meet. Meet. Every CRO there is hiring. Every CMO is hiring. Everyone's hiring. That's at sa. Everyone in the world isn't hiring. But every single CRO I talk to backstage or at an event is hiring. Maybe not as many. Maybe as many. But they're all hiring. And there's no better place to get a job or just meet C level executives. And how many 813A's and SDRs that did booth duty wanted a free VIP ticket on us? Four. Four, four. Took an opportunity of a lifetime to hobnob with the best of the best. Even worse. I'll give you a tough thing we were talking about this morning. So this is just. I know it's using Sasser and Sasjan as a proxy for SAS, but for years we've been doing the SAS Jo for. We've done 10 of them. It's a lot, but we've learned a lot because we have a lot of data. And I would say until two years ago, then when we go and talk to our sponsors, there are a lot of. We love them. We love all of them. We love them all like our friends and our children and our partners. But they're pretty grouchy. A lot of times in the college you get used to it, you got to develop a thick skin. And until two years ago, the number one complaint was we didn't get enough leads. I'm like. And we pull up the list, we're like, you got 582 leads, you got 681 leads, you got 281 leads. We didn't get enough leads. And we push them. And it was just, there was. Maybe there's some truth to it. It was just the common complaint and it's okay, you got it. You got to hear it in sales. Ultimately that's what we'd hear. And then last year started to change and this year changed a lot. And this year we heard from startups, scale ups and public companies, massive public companies alike, of our sponsors. We got too many leads. We got too many leads. And we're like, what do you mean you got too many? At least we got you your leads. At least we accomplished our decade long goal, like literally. And we heard this on two conversations this morning. I can't get my sales team to follow up on them anymore. They won't do the work. Now I know this. I'm just among us Saster friends. Okay? I don't mean to be grouchy pants. But we heard this 20 times so far. I can't get. It's too many leads. It's too many. We had one partner we've worked with for years, a great one in the compliance space. They got over 700 folks leads and they got over 150 folks that weren't just leads that said I'm interested in buying this product. Over 150 folks said that wanted to know. They, they said they just couldn't get the sales team to fall up. It was too much. It was too much. They didn't want to do the extra work. So do we need to fix our processes and systems? Yes. I don't have all the answers but we have to be relentless about this because I'm worried that our sub productivity is so much lower than it was pre March 2020, even two years ago. And I don't have the answers but we've got. Hopefully automation will solve it for us as well because I think it's an existential issue for founders. So my last point, Look, I know for some folks it's hard out there, but Monday just crossed a billion in AR growing 34% with 110% NRR from SMB. So 22% free cash flows. Go find your Monday. And what do I mean by that? Like we can't all be Monday. But if you're still feeling sorry for yourself, if you still think we're in a downturn or if you're still feeling a little bit of a Debbie downer as and we're seeing on your team, go find your Monday. Go find the areas of your industry that aren't seeing a downturn. Go sell outside of tech, go more enterprise, go more SMB in some cases lean into compliance, lean into security, lean into AI budgets. Go find the money, the overall and then I'll bring us. The Overall budget for SaaS is at all time highs per Gartner. It's growing faster this year. 20% at hundreds and hundreds of billions in revenue. Go find your little piece. And if your growth has slowed, if your growth has slowed dramatically, it always means one thing. And, and as founders or as leaders, you have to internalize this. If growth has slowed, it is not a downturn or macro, it's a little bit of it. It is that you have fallen out of product market fit. If two years ago you were growing 100 and today you're growing 20%, it is not just the market. It is that you do not have the product the market wants anymore. You don't. It's a fact. You have fallen out of product market fit. And be honest, it doesn't mean your product is terrible, but the world has moved on and evolved. The budget is there, it is just not finding you. So step it up and rebuild your product so that it is the product the market wants today. Is it hard? Yes. But if you have decent NRR and your customers aren't quitting, at least you have time. At least. That's a beauty to SaaS. If you have 100% NRR and you want it badly enough, you always have time. You always have a couple of years. But be honest, you've probably fallen out of product market fit. Okay, so go build some hyper functional SaaS.
