The SaaS Decacorns: The Covid Beneficiaries

Everybody, I wanted to talk for a minute about COVID beneficiaries. And what do I mean by this almost macabre or strange term? Well, it's tough to figure out what's going on in the world today. On the one hand, we look at our LinkedIn and our Twitter. At TechCrunch, we see many iconic companies laying off 30 to 40% of their teams. We see friends that we know losing their jobs. And it's terrible. And the economy is terrible. And we are approaching 20 to 30% unemployment, maybe more if you include underemployment and furloughed and paid, but not working. And yet, and yet the stock market is essentially at all time high. And yet There are over 20 SaaS decacorns, 20 SaaS companies worth more than 10 billion. Today, Shopify is worth almost $100 billion. Wix just crossed 10 billion. Datadog, it just IPO'd, it's now worth 20 billion. When Zoom IPO, they thought they might be worth 4 billion. Now they're worth $60 billion and going up. That's more than the entire airline industry. Decacorns are everywhere in SaaS in what are in some ways the worst of times for us. So what's going on right now? Well, the simple point is there's three categories of SaaS companies, and you know this. There are the COVID beneficiaries, and that's probably only 15, maybe 20% of SaaS companies. But folks that are getting to benefit from it, there's the COVID impacted folks who many of their customers are hurting. So their growth is decelerated, but still growing, but not what it was before March 15th or so. And then there's SaaS folks who, they're great companies, but their products just aren't needed today. Maybe the most iconic example that's public is Eventbrite. We love Eventbrite. You love Eventbrite, but without live events, as much of 95% of their bookings have been lost. So that's tough. But there's enough Covid beneficiaries. And we know about Zoom and we know about Slack and we even know about aws. But look at these other categories. Some of you know this, but some of you don't. E Commerce is on fire. Look at Shopify. Its growth has gone up incredibly. And more importantly, it's not just Shopify, it's almost everyone in E commerce. We talked about Gorgias, a contact center for Shopify and E Commerce. They grew 70% last month. 70%. So anything connected to E Commerce is getting a boost. Algolia Search as a service company has seen record usage because people are searching for products to buy Etsy, which many of us almost gave up on a few years ago. It seemed like no one needed Etsy. Etsy is worth more than $10 billion today. So E Commerce, everywhere that it can is growing. Instacart is coming up on $20 billion of value. So E Commerce is a beneficiary. Mobile apps and app development Twilio's on fire. Everyone I know building mobile apps is getting more demand. I'm not even sure why. During shelter we're building more apps but we are banking and fintech all over the place. Some folks are struggling a bit, but other folks that are enabling this Digital Transformation, banking, APIs and others are growing at unprecedented rates since March. And another one that folks might not realize but now you'll see as obvious is Contact center. Look here at RingCentral. RingCentral is coming up on $30 billion market cap for doing cloud contact centers. Five nine which you might not even know about in 2014 I know is worth 150 million doll. That's what I wrote in my talkdesk memo when I invested $150 million in 2014. Today it's worth 7 billion. 150 million is a public company which isn't great. 7 billion today that's 40x559. That's a Covid beneficiary you didn't even realize was there until you go type 59 into Google. So Covid beneficiaries aren't all of us. Many of us are hurting but it's enough. It's enough that the BVP NASDAQ cloud index is at an all time high. There are more of them than we expected. We did not the Etsy's, we did not expect. The Ring Centrals we did not expect. Here's Atlassian. We knew Atlassian would be great, but we didn't know that quietly because Atlassian isn't making a big deal of it. They would be doing just as well as Slack. So there's enough Covid beneficiaries to drive the markets up. Covid impacted. That may be more of you. My guess is that's 50, 60, 70% of SaaS companies. Interesting times for the COVID impacted. You may have segments of your customer base that are doing well the ones we just talked about. If you're selling to E commerce, if you're selling to collaboration, if you're selling to Contact center, you may See more demand for your product today in those categories. But other segments of your customers can be hurting. If you're selling to recruiting, they may be deeply hurting. If you're selling segments of sales and marketing, they may deeply hurting. So do your green lights way out the red lights. It can really vary. You also see a balance between push deals and upsells. And a lot of folks in sort of what I call Covid impacted, a lot of their existing customers may need more during shelter, they need more of their product. And when you're sheltering, you trust your existing vendors even more. So I'm seeing more and more upsells in the COVID impacted, but deals are still pushed. Even now when think people are calming down, deals get pushed. So there's a balance. The green lights and the red lights segments, they weigh back and forth and upsells and push deals. So in many cases the COVID impact might see their growth cut by 30%, 50%, in some cases as much as 100%. But they're still growing in some segments, which is super important. And then lastly, and I don't want to spend a lot of time, there's obviously what I call the COVID neutralized. These could be great companies, iconic companies. But if you're in travel, if you're in events, if you're in similar areas, it will be years until things are normal. And it is what it is. No matter how good a company you are now, if you're, especially if you're Covid impacted, what are five lessons we can take from the beneficiaries and bring back to our company so we can do better? Let me give you five things that I see working well today in this crazy world. The number one is real free editions. And what do I mean by that? I don't mean yet another free trial and I don't mean a Covid edition for first responders. Those are fine, but those are marketing tactics. Those are not changing what your customers can do today. A real free edition, I mean is something that's awesome that most of you don't have today. But think about it for a minute. You know what the two best free products on planet earth are in my opinion? Zoom free and slack free. They're so free sometimes we don't even need the paid versions. I mean you can go 40, 50 minutes on Zoom and never pay. And slack. I mean slack free is awesome. Yes, you don't get search and you don't get some other things, but boy, you can chat away and communicate with your team for a decade and never pay with slack. And yet it hasn't hurt either of them. In fact, it's just grown their bases. But the key to a real free edition is it has to be so good that five to ten times more people will use it than are using your paid version. And they have to be roughly similar to your existing paid customers so that they can spread the word and maybe eventually convert. So it has to be awesome. But an awesome real free edition does work today. The second thing, which sounds obvious and we talked about this earlier, but you have to focus your sales and marketing teams not just on small, medium and large customers, not just on geographies and traditional ways we divide up our team, but on green, yellow and red segments. You have to take part of your sales and marketing budget and go after your customers in collaboration, in elearning, in communications in these areas that are benefiting. And there's no need to reduce quotas or to change anything. In greenlight segments, you may even be able to increase quotas a little bit. But in segments that are impacted, but not unneeded, but impacted, you may need to have some quota relief. For folks doing that, it's going to be harder. And in the not needed categories, you may not even want to charge. You may not even want to charge customers that are so hurting. So you have to segment your marketing, your sales activities by green, yellow and red customer categories. You got to do it. The third point is realize if it feels like all the marketing spend in your category disappeared in March and April, probably did. Probably did disappear. But I see everywhere that it's back, that marketers are back. In some categories, they're not back like they were before. In some categories they're back to normal, but they're back. Marketers now have a plan for this year and next year and they have to hit it. And their spend may be the same. It may be 50% lower than before, but they're ready to spend on high ROI categories. There's probably still skepticism on things they don't believe will work, and we're all still fatigued with dealing with new vendors. But marketing spend is back. So how can you access it? It's back. Fourth point is this works really well today in challenging times. But when folks have time for discovery is better onboarding. And I don't mean of employees, although that's super important. I mean better onboarding of prospects during trials and discovery and better onboarding of new customers. We all think we're great at this because our web app has such a beautiful UI, but it's not. A wiki is not enough. An FAQ is not enough. One customer success person handling 100 accounts is not enough. Make your onboarding awesome. And how do you know if it's awesome? Well, check your activation rates within one day, 24 hours, one hour, one week, whatever is right for your app. Do more than 90% of your new customers go live. If it's not over 90 in the shortest possible time, you can define onboarding as you're getting an F. You are flushing customers you work so hard to get right down the drain. And if you're not over 90, something's wrong in your onboarding. So go fix it. Set a quantitative goal and this is how you can measure onboarding. What percent of your customers go truly live? Go for real within the shortest possible date. That makes sense. If you start measuring that, you're probably going to be disappointed. You're probably going to see it slower than you think. And if you set an almost immediate goal to drive it up, your onboarding will get better by nature. And the last of the five tips of things that are working well today that are maybe slightly non obvious is helping builders. Folks like Twilio are seeing this left and right. They're exploding. Folks that are helping builders build for real are accelerating. It's related to but different than the onboarding point if you're B2D. If you're an API, folks are out there. They want to build more stuff during shelter for whatever reason. Square, Twitter, they're never going back to the office in many cases. Salesforce will be very limited this year. Facebook, Google, not going back to the office this year. Folks want to build more, but enable them. Whatever you're doing, make your documentation better, make your API better, do a weekly webinar, hire a solution architect, do whatever it takes to help builders build. And they will build more today than they would have 90 days ago. And just two last points on cloud beneficiaries. Here's one from Gartner and Gartner isn't perfect, but it's probably our single best source of what's going on in enterprise buying today. At least they're doing the work. At least they're talking to hundreds and hundreds of CIOs every day and every week. And it's very interesting. And what they said just as recently as a month or so ago they said it spending would be 0% would be flat this year, which is unprecedented. Even 0%. It hasn't grown 0% since the last so for over a decade now they came out with a report that said it spend is going to be down 8%. I mean that's stunning. It is almost $4 trillion spent just in the US, the US alone, 4 trillion. And for the first time it's going to drop and it's going to drop a breathtaking amount, 8%. So if that was it, then maybe we should all hibernate or even quit. I mean that's a drop like we've never seen before. That is falling off a cliff, IT spend. But Gartner also said cloud spend notwithstanding, that is going to grow 19% this year and SaaS will grow 20 some odd percent. And they said that 50% of the CIOs they talked to are cutting their spend. Cut, cut, cut. Even now 50% said they're increasing. There's spend in automation, that can mean digital transformation, that can mean collaboration, that can mean contact center, that can mean whatever, that can mean RPA. But SaaS, the money that's there, it's going to SaaS and Cloud and automation. So find a way to position yourself so you can get it. And the last related point for these Covid beneficiaries, and really, if you think about Gartner and you think about things that are working, even if you're not a Covid beneficiary, you have to find a segment where you're a Covid beneficiary, find an area where you are and focus your efforts there so part of your company can thrive, even if all of it can't today. But what's going on with vc? Well, VC is back with a passion. The Wall Street Journal just said that Sequoia Lightspeed and a bunch of the other top firms had all said they'd done a significant investment since COVID 19 with founders they'd never met in person. So that's a big step forward. It had to happen. But the biggest firms and the best firms are investing on Zooms today with new teams, not folks they met before all of this. So VCs are back. They're back. They have more funds than ever. They may be a little more conservative than before, but not much. They're all sitting on lots of money and they want to make money. And they're looking at these Decacorns, they're looking at the Datadogs and the Zooms and the MongoDB's and the Wixes that are all worth 10, 20, 40, 50, 60 billion. Wouldn't you want to invest in them? Of course you would. VCs are back there's more decacorns than ever. But here's the thing. Remember, all the money is going to cloud beneficiaries. I mean, not all of it, but almost all of it. If even only 15% of SaaS companies are growing faster than since March 15, wouldn't you invest there? Of course you would. VCs can make a bet. They can make a bet in the future. They can even make a bet that, hey, you'll come back, you'll come back when the world is normal and you'll be stronger than ever. But the further along you are, the harder it is to make that bet. Because VCs do need proof points. They don't need all the proof points, but they need proof points. And if you have fewer proof points than 60 or 90 or 120 days ago, it's very hard to get funded. So they're gonna put massive amounts of money into Instacart. They're gonna put crazy monies into Notion. Even notion's only doing 40 or 40 million. 30 million and it's worth 2 billion. But it's growing like a weed today. That's where the money's going to go. So if you're not a Covid beneficiary either, just don't even try to get funded today or find a way to make yourself a beneficiary. Find a way to highlight the part of your business that is growing like a weed. Even maybe the rest of it needs to be in a different color than it isn't. So hopefully you are a Covid beneficiary. But if not, find the piece that is, rally the team around that and use that to pull you through these crazy times.