If you’ve been involved in investing or fundraising activities in the past, you’ve likely heard about “TAMs” (total addressable market), as in “So what’s your TAM look like?” The general idea is to determine a metric that communicates in few words the nature of a given market for a product or service. Investors want to know how a company thinks about its market opportunity (investors generally want large ones), and startup founders need to have a sense for what they can realistically target, build for, sell to, and capture to build a business. You may also...
An interesting post from Sandy on the “stealth objection”: when a customer, investor, user, employee — anyone — harbors some resistance to what you’re selling them, but doesn’t make it explicit.
My experience here is mostly in getting users to buy or adopt our product. Anytime you’re showing off what you’ve got and selling them on the concept, some objections are out in the open. “It’s too expensive”. “It doesn’t support SSO”. “I can’t integrate with X”. These ones are on the easy end of the spectrum. At least you know where you stand!
One of my favorite ideas from my friend Sandy Kory is that “great product-led companies create their own TAM”. His latest post is on this topic, that worrying about deep TAM analysis is a distraction for early companies:
Is TAM really that bad? The problem is that at the seed stage, looking for TAM will push a startup towards existing markets & existing budgets. This can take a startup away from finding the best early adopters for a disruptive product. It can also stifle the long-term orientation needed for startup greatness.
The beauty of software startups is their potential...
Jason Lemkin with some interesting takeaways from Palantir’s performance over the recent years. A couple of highlights:
#2. Its Top 20 Customers pay an average a stunning $45m a year (!). And that’s 24% higher than a year ago!
#4. Yes, Palantir is Solidly a Software Company. Gross Margins remain well above 80%. It was perhaps fair to criticize Palantir as a services business in large part in the run up to the IPO — but no longer. With many quarters of 80%+ gross margins, that’s software.
The net retention they’ve demonstrated is bananas: 120%+ consistently since going...
The construction market for startups (one that I’m fairly involved in, but only as a segment of our market) has been a historically tough nut to crack for technology companies.
This is a great breakdown from Brian Potter on the past couple decades of construction startups and funding amounts, with a useful segmentation by category into slices like builders, materials, energy use, construction software, digital twins, and more.
It wasn’t surprising to see builders taking such a huge proportion of the funding — after all, trying to scale a soup-to-nuts homebuilding company is enormously capital-intensive. Management software scoops in an ~8%...
Brian Potter wonders why work as taxing and seemingly-mechanically simple as brick masonry is difficult to automate:
Masonry seemed like the perfect candidate for mechanization, but a hundred years of limited success suggests there’s some aspect to it that prevents a machine from easily doing it. This makes it an interesting case study, as it helps define exactly where mechanization becomes difficult - what makes laying a brick so different than, say, hammering a nail, such that the latter is almost completely mechanized and the former...
Morgan Mahlock wrote recently about the promise of Stripe Press, Stripe’s book publishing outfit:
Within the legacy publishing industry, Stripe’s young publishing press is refreshing - it is Sutherland’s electric cover art on a dusty, tired bookshelf. An Authoritative Look at Book Publishing Startups in the United States by Thad McIlroy states, “Book publishing has never been a technology-adept industry; indeed it is historically technology-averse. This is a challenge for the (minority of) startups targeting existing publishing companies.” Stripe Press is different because it was born from a technology...
David Skok opens this post on selling with the classic sales training mantra — customers love to buy, but hate to be sold to:
Customers hate being sold to. They don’t mind getting expert help when they want to buy something. But much of the time they are not ready to buy, and one of the most irritating things is to have a salesperson try to get them to buy when they aren’t ready. Unfortunately too many people in marketing and sales positions don’t seem to understand this, and proceed...
Customer success teams in SaaS are most closely associated with measuring and preventing churn in business, often even having compensation or performance metrics tied to churn rates.
We look to CS teams to identify churn early, but the project of reducing it isn’t only in their hands.
This piece from Kyle Poyar makes the case with examples of how other teams should be participating in retention. After all, churn is only a signal of something missing about your business — the support wasn’t there, the...
I recently watched this Mark Roberge session where he had an interesting way of describing the challenge that follows product-market fit. Tons of startup literature is out there talking about p-m fit. And likewise there’s plenty out there about scaling, leadership, and company-building.
One of the most fascinating stages is in between, what he calls “go-to-market fit.” This is where you’ve found some traction and solved a problem, but haven’t figured out how to do it efficiently. Here’s how you think about the...
I enjoyed a couple of notes from this interview with Atlassian President Jay Simons. They’ve famously built a business with bottom-up adoption dynamics, allowing them to hit the $1bn revenue milestone without a traditional sales-led model. It’s especially impressive how they’ve been able to do that while also successfully going upmarket to larger and larger customers, who are typically high-touch by default.
My favorite comment:
“We think of the funnel as a product. Potentially when a customer raises their hand, when they actually need to talk to you, that’s...
As long as you consider linear algebra and eigenvectors “basic math”:
They’d noticed that hard-to-compute terms called “eigenvectors,” describing, in this case, the ways that neutrinos propagate through matter, were equal to combinations of terms called “eigenvalues,” which are far easier to compute. Moreover, they realized that the relationship between eigenvectors and eigenvalues — ubiquitous objects in math, physics and engineering that have been studied since the 18th century — seemed to hold more generally.
In SaaS there are dozens of common metrics to measure on performance, like a pulse check on your company. Because of the often-high customer-to-revenue ratio with SaaS products, recurring revenue itself becomes a watermark metric to watch as an indicator. Recurrence leads to investing in and measuring customer success metrics, in order to keep that recursion happening indefinitely — customer lifetime value gets large with satisfied customers!
NPS, time-to-value, net retention, and customer health scores are just a few of those metrics that help give you a leading indicator...
Any business that makes money from the same customer more than once can be said to have “recurring revenue.” But the term in the SaaS universe has a more specific flavor to it, thanks to the unique nature of the business model, value delivery, and the commitments between vendor and consumer. You may think “so what” when you hear that SaaS revenue is special or somehow better than other ways of making money; after all, the money’s still green, right? But there are a number of benefits that come with the “as-a-service” relationship between vendor and customer. Software companies fit...
This talk from a16z’s Martin Casado covers how the market for B2B SaaS go-to-market is changing from sales-driven to a marketing-driven. We’ve been thinking a lot about this lately in the context of Fulcrum — how the “consumerization of IT” plays into how business users today are finding, evaluating, purchasing, and expanding their usage of software.
As he describes in the talk, consumer business tend toward a marketing-led GTM, and enterprise ones toward a sales-led GTM....
Earlier this year at SaaStr Annual, we spent 3 days with 20,000 people in the SaaS market, hearing about best practices from the best in the business, from all over the world.
If I had to take away a single overarching theme this year (not by any means “new” this time around, but louder and present in more of the sessions), it’s the value of customer success and retention of core, high-value customers. It’s always been one of SaaStr founder Jason Lemkin’s core focus areas in his literature about how to “get to $10M,...
Zoom is one of those admirable SaaS companies built on solid product and amazing execution. I love this — not relying on anything sexy or super inventive, just solving a known problem better than everyone else. My favorite bit is their retention; it proves what can be done even in SMB with lock-tight product market fit:
Zoom has 140% net revenue retention. This is similar to RingCentral from our last analysis and other leaders. Zoom also shows that yes, this can be done with smaller customers too, not...
This post from Hiten Shah tells the backstory of one of the more interesting startups these days, Airtable. Like the title states, the objective of Airtable is to build a no-code system for data management and application-building. At a billion-dollar valuation now, they’ve clearly knocked it out of the park with their product-led growth strategy.
Even in the face of the 5,000 pound gorilla of Excel, they’ve broken things open and are beginning to attract mass-market users.
Microsoft had been the undisputed king of productivity software for 20 years by the time Airtable went...
Seems silly, but this kind of thing is great for the open source movement. There’s still an enormous amount of tech out there built at big companies that creates little competitive or legal risk by being open. Non-core tools and libraries (meaning not core to the business differentiation) are perfect candidates to be open to the community. Check it on GitHub.
A good overview from YC’s Kevin Hale on how to break down startup ideas:
The “solution looking for a problem” trap is all too easy to fall into, and to justify your way out of even if you fall prey to it. I love the approach here of starting with the end goal ($100M ARR) and backing into what the market size and price point would need to be to hit that target. So simple, but most of us don’t approach...
Some interesting data on the current state of public SaaS company performance:
SaaS multiples look steady: of the 82 SaaS companies we follow, the average public SaaS business is trading at 10.03x revenue while the median is 7.72x. Interestingly, the gap between the average and median has never been larger for the time period shown, meaning more attractive SaaS companies are being rewarded with big premiums.
While valuations aren’t everything when it comes to company health (the calculus for valuation can change quickly), recurring revenue is still an...
Interesting data here in Okta’s annual report. It’s clear that the way customer’s buy SaaS is very different than the “single-vendor” purchasing preferences from years past. SaaS allows businesses to buy and integrate the best-fit tools for any jobs:
We also looked at whether companies who invest in the Office 365 suite — the top app in our network — end up committing to a Microsoft-only environment, and the answer was clearly “no.” We found that 76% of Okta’s Office 365 customers have one or more...
This is a good series of bite-sized videos with lessons on various components of sales strategy for startups. Peter Levine of a16z talks through things like channel definitions, marketing vs. sales spend, setting quotas, forecasting, and more.
I’m headed out to San Jose, CA next week for the SaaStr Annual conference. It’ll be my third in a row; definitely one of the events I most look forward to nowadays. It always brings a great combo of interesting content, energy, diverse attendees, and fun side events to enjoy.
I wrote up this preview of sessions I’m looking forward to this time around. They do a great job touching on some of the same things year over year (helpful for tracking industry trends) but also mixing in plenty of new voices each time around.
This is a great overview of the importance of CAC in a SaaS business.
One of the enjoyable things about SaaS is how much you can modify and optimize what you’re doing by measuring various parts of your process, especially in SMB-focused SaaS. Marketing, early-stage sales, late-stage sales, customer success — it’s like a machine with separate stages you can tweak separately to make incremental improvements.
Fulcrum, our SaaS product for field data collection, is coming up on its 7th birthday this year. We’ve come a long way: from a bootstrapped, barely-functional system at launch in 2011 to a platform with over 1,800 customers, healthy revenue, and a growing team expanding it to ever larger clients around the world. I thought I’d step back and recall its origins from a product management perspective.
We created Fulcrum to address a need we had in our business, and quickly realized its application to dozens of other markets with a slightly different color of the...
We’re about to head to SaaStr Annual again this year, an annual gathering of companies all focused on the same challenges of how to build and grow SaaS businesses. I’ve had some thoughts on SaaS business models that I wanted write down as they’ve matured over the years of building a SaaS product.
I wrote a post a while back on subscription models, but in the context of consumer applications. My favorite thing about the subscription structure is how well it aligns incentives for both buyers and sellers. While this alignment...
Since Apple changed their subscription pricing options for App Store developers back in 2016, several high-profile apps that have made the switch from fixed pricing to the subscription model. TextExpander, Day One, and Ulysses are just three that I know of and use.
I may be biased as I’ve been building and selling subscription software for years, but I love that the Apple ecosystem is supporting this now. Ulysses provides a great example: their fixed model had the price at $45 for the Mac app and $25 for the iOS app. Their new subscription is...
Everyone in the SaaS product business should watch this. Great approach to thinking through putting prices on your SaaS service.
The key is to understand all the facets of your product and what things cost you as the creator, in addition to slicing and dicing options for your customers to buy what they need. Facets like:
Quantities (How many gigabytes? What kind of bandwidth is...
