B2B Insights from NYC Summit 2019
On product-led, bottoms-up, & assessing TAM in SaaS
Had the pleasure of attending Primary Venture Partners’ 2019 NYC Summit yesterday and want to start by congratulating the team on a particularly well-curated and organized event. It was my second year attending and I highly recommend it to all investors and founders who want to experience, first-hand, the palpable energy of the early-stage investing landscape in the world’s greatest city.
As a function of being an early-stage VC, I sit through many panels at technology and investing conferences, and more often than not, they are overpacked with people just agreeing with each other for 45 minutes until attendees can get up and network again. Thankfully, yesterday’s panels were far more insightful and significantly less harmonious.
My favorite was the lively panel David Politis (Founder & CEO of Better Cloud) moderated between investors Ken Fox (Stripes Group), Merci Victoria Grace (LSVP), Rebecca Lynn (Canvas Ventures) and Trevor Oelschig (General Catalyst) on the myriad of ways to build a SaaS company in today’s landscape — which is a topic I’ve written and tweeted about obsessively in the past.
While I don’t have a photo of the panel because I was furiously typing notes, I’ve tried to paint a picture below with key takeaways from yesterday’s chat:
Barbell to The Danger Zone
What is the Top-Down / Bottom-Up SaaS Barbell? A16Z’s Martin Casado and others have written about this shift more eloquently but simply put: on one end, you’ve got low-ACV but self-service, network-effects, and viral adoption, allowing you to acquire customers (cheaply) and rapidly. On the other end are complex tools that take a dedicated (expensive) enterprise salesforce but have better lock-ins and command higher ACVs commensurately. Rebecca Lynn cautions “When it comes to top-down or bottoms up, both ways can work. But where you really don’t want to be, is in the danger zone in the middle” meaning low-ACV product but still requires enterprise sales motion.
Meanwhile, as an investor, Merci Victoria Grace said she sticks to one side of that barbell, given her experience as Head of Growth at Slack. “With enterprise sales, you might get an early signal and up to $5M in sales by grinding your way to an okay, but not intact, business. But with bottoms-up, you can really see the growth trajectory to help identify the truely outlier businesses”
Ken Fox highlighted that the reason bottoms-up works so well is that “it’s entirely product-led growth and built on a product experience which clearly, meaningfully resonates with the customer” which he differentiated from the “old way” of sales-led (often vaporware-driven!) enterprise sales. While in agreement, Trevor Oelschig challenged one part of the bottoms up go-to-market, at scale:
“The tricky part,” he said “is that if you look at virtually any bottoms up company, they’ve all had to make the enterprise shift at some point.”
The panel shared Slack, Zoom, Zendesk, Salesforce(?), Datadog, Dropbox, and Bettercloud as core examples of this shift. Trevor points out that when you have to make that shift for the first time, the priorities in the company can start to contradict when going from product-led to sales-led. But, the most common way companies grow their addressable market is to move upmarket, meaning this shift will be a common challenge to face.
Another interesting insight the panel noted was that while it’s increasingly standard for a company to start bottoms-up and move to enterprise, very rarely — if at all — have there been businesses that start top-down and move successfully the other way. For now, at least, “getting to top-down enterprise adoption is a better-known motion” shared moderator David Politis about Bettercloud’s journey from freemium to enterprise pricing structure.
TAM! Huh? Good God… What is it good for?!
What do investors value most when assessing early-stage B2B deals? This topic had my absolute favorite exchanges on the panel because, it seems, a lot of the venture community is still split on the importance of TAM or “Total Addressable Market”.
For Rebecca at Canvas Ventures, the analysis has to start with TAM because “this may be a fabulous business, it may generate a lot of cash for you. But that doesn’t necessarily mean it’s a venture-scale business” if it addresses a small or niche market.
Trevor meanwhile approached his analysis of the market by articulating his framework for assessing product-market fit “(1) This is a priority (2) there is a clear buyer/decision-maker (3) ability to expand the surface area after solving core problem”.
But Merci showed no mercy to an audience of (mostly) VCs:
“I’m going to disagree with the panel on TAM being most important because I don’t think most VCs are smart enough to figure out what the TAM of a company really is”
She instead articulated her framework as “(1) timing (2) go-to-market & (3) founder” adding, said she would have included “product” in there a few years ago, but today, “timing matters most because it has the biggest impact on TAM”. Merci tied this back to her Slack experience where most investors felt the TAM for a “chat at work” product was “obviously” tiny.
Don’t worry about TAM she advised founders (and investors), “it’s more important to have a deep understanding of your customer and the pain point that you’re solving.”
Amen, Merci. Amen!
Know When To Walk Away, Know When To Run.
I really appreciated that David Politis asked the panel of experienced investors for advice to their younger selves, on behalf of the audience. Honestly, there was so much great advice on investing offered throughout that panel so I jotted it down and purposely left it unattributed:
“Having been through multiple cycles, I can say that the longer you’re in this business, the more it feels like you have to be able to forget, to be able to do it well. Sometimes things that didn’t work in the past will cycle back because market conditions have changed.”
“For most people, if your first impression of a founder is really positive, it’s usually because they are a lot like you. But if you’re negative on someone, it’s worth asking if this is because of some kind of learned bias, and taking the time to counteract your own bias to better evaluate the opportunity”
In the context of building relationships with founders to lead their round, only to have them sign a term sheet from a different fund entirely: “If you think you’re “on-top” of something, just know, there is probably someone more on-top of it than you”
“Find a mentor early [in your career]. For me, that has been hugely impactful.”
“When I came into Venture, I thought VCs had to be all prim and proper, and I felt a lot of pressure to ‘fit in’… Then I realized, it’s okay to be myself. Just be yourself because that is what will resonate with founders.”
Thanks for reading! If you liked this recap, please hit that 👏 and share it, so others can discover and enjoy it too. Follow me on Medium and on Twitter (@JayKapoorNYC) for more musings and irreverent commentary on technology and early-stage investing.
