Some SaaS learnings from SaaStock 2016
I just got back from the lovely green city of Dublin. And the least I can say is that it was a high quality event. I’m more and more convinced that in order to extract substantial value (at least as a VC, but I guess it also applies to founders) from events, it’s better when they are more ‘vertical’ or nichy, here on SaaS. Attendees tend to be more focused and engage on a deeper level than in EverythingTech fairs. Last time I had this feeling was at Alex. Delivet’s B2BRocks so I guess there’s something.
As I really enjoyed my (short) stay at Alexander Theuma’s SaaStock 2016— I wasn’t able to attend pre- and post-conference stuff — I wanted to compile a few learnings for SaaS VCs / founders / aficionados who couldn’t attend.
Disclaimers:
- it’s not exhaustive, as you can’t make connections with startups and attend talks all at once :)
- I reorganized ideas by themes, not by talks
SaaStory
Des Traynor from Intercom decided to go back in time a bit to give a bit of context around SaaS. In his view, the unbundling of Hardware vs. Software by IBM in 1969 kickstarted software as ‘a thing’, propelled by Bill Gates’ call for quality (ie paying) software back in 1976. At that time, software distribution was something like this:
and the sales process was about Salespeople selling to the CEO of an Enterprise who then imposed the solution to the end-user. Then came the onset of the WWW in 1989 and it took 10 years for Marc Benioff and Parker Harris to launch a software embedded in a web browser, as a tiny eccentric project called Salesforce. ‘We suddenly realized we can build software in our bedrooms and distribute it via the internet’, and everything changed in Software development and distribution. SaaS as we know it, expected to grow on average at +18% per annum from 2013 to 2018.
Product, product, product
So now with SaaS you can just code a product, put it online, iterate and design it with the end-user in mind. No need for expensive business travels for your salespeople to go and pitch CEOs, you ‘just’ need business users to come and try your product and if they like it, they’ll pay for it (say hi, monetization), stick to it (delighted, retention), and talk about it (nice to meet you, organic acquisition).
So what’s a Product-first company then, as opposed to Sales-first and Marketing-first? It’s one that solves real problems with a great product, the success of which is core to the success of the company. Each and everyone of its features is both feasible, visible and desirable.
As for the aim of the software, Christoph Janz of Point Nine Capital adds that it should be a painkiller solution, to a large number of companies, whose needs aren’t currently served by incumbents or substitutes.
This is it! Product Market Fit
And now you work your *** off on your product, you get only a 20% chance of finding the holy grail, Product-Market Fit. As Peter Reinhardt from Segment puts it, PMF is not when you get some traction. It’s “when every single metric of your business is exploding” and you feel overwhelmed by this. And this is the moment to accelerate, not before, as Nikos Moraitakis of Workable puts it, “too fast is not necessarily good, there’s a balance to be found”, which Nicolas Dessaigne of Algolia describes as follows: at every point you need to decide the speed (ie growth rate) you need to have. Jos White of Notion goes even further with this analysis:
Metrics ought to be symMetric
So every metric of your business needs to be exploding. That’s the thing we love about SaaS: it’s measurable in details. But there is one mistake many founders make, according to Patrick Campbell from Price Intelligently, it’s being ‘obsessed by acquisition’. According to him, data collected on over 3000 SaaS companies suggests that balanced growth, where the # of clients, the ARPU and churn metrics are improving all at once is the key to a successful SaaS startup.
In order to have a better view on this healthy growth, Patrick suggests to build (data-driven) buyer personas, store them in a central repository accessible to the whole team, and to calculate the LTV and CAC per category.
Pay the high price
Price Intelligently data suggests that out of the three pillars (Acquisition / Monetization / Retention), Monetization is actually the most powerful. But what price should you charge? It seems obvious, but it’s worth a reminder: you need to charge for the value created. You can do it by: 1. knowing your numbers 2. quantifying your buyer personas and 3. implementing a customer development process. Do the latter by asking customers about the value they perceive, with price sensitivity analysis and relative preference data.
Leo Widrich of Buffer even boldly states ‘double your price (…) increase in price is very underrated in terms of positioning’. The key for him is to find the true value that you deliver to a business and how it translates to a dollar value. Product is about building the value for customers, growth is just the demonstration of this value. You got it, as hyped as growthhacking is, it is about going over the value created, and doesn’t seem that sustainable.
Is Saales in excess?
Does it mean there’s no room for a proper Sales process? For Hampus Jakobsson from Brisk ‘the first ten people are people you are going to marry’, and it translates to the Sales team. One bad hire can destroy the spirit of the whole team, so you better spend as much time as possible with them without a contract to really get to know them. Fergus Gloster also suggests to spend time on reference checks. And then once hired be really sure after the first 3 months that the Sales guy is an A-player.
SaaSsyness is not enough
Gil Dibner, investor and syndicate lead for AngelList reminds that there seems to be a magical perception around SaaS, which is basically only a distribution model, and sometimes a business model. ‘the SaaS toolkit’ with all the metrics is not enough: every Venture fund needs to make a big exit, to which barriers to entry are essential, you need to build a strong technology.
Similarly, PriceIntelligently data also shows that good old SaaS acquisition is dead. Given that it costs nearly zero to build and distribute a software, competition increased dramatically as more than half of the 3000 SaaS startups declare having at least 6 competitors, making Customer Acquisition Cost surge by 50% over the last four years. Along with that, the relative value of features and the attached willingness to pay are decreasing and converging to zero. Hence the need to stop obsessing over acquiring more logos and work on monetization (upsell) and retention.
Future of SaaS
SaaS seems to be such an efficient delivery mechanism that it is not easy to forecast a radical change. The switch to APIs and giving more power to developers might be a thing. Yet, most of the software available is passive, ie requiring you to enter manually information directly into the software, which locks the customer in, but also greatly slows down the onboarding and diffusion of the solution.
So the future of SaaS seems to be around ’intelligent software vs. passive software’. So software infused with data, on which you apply machine learning to make actionable recommendations. Gil Dibner warns about the long term barrier to entry with AI: most AI algorithms are off the self, and public data is by definition public, so be sure to keep a proprietary component in your business.
If you attended SaaStock 2016 and think I missed something, please notify me in the comments or on Twitter.
