The Rising Stakes in SaaS

Last week, I participated in two discussions about the changes in the SaaS world. I believe they are fundamental. The most important force shaping the industry today is competition. The level of competition in many core SaaS segments is intense. Why? The SaaS era is about 20 years old. Salesforce was founded in 1999. Since then, many major categories of software have been saasified. Venture capitalists have financed many of those businesses. Over that 20 year period, annual SaaS investment has increased 20x, peaking in 2014 at $7B. Those venture dollars have financed a panoply of competition. In 2012 ChiefMartec landscape counted 350 vendors selling to sales and marketing. Today, that figure is 5000. The landscape is so vast - and the logos so minuscule - that it’s useful only as an illustration of competition. This sea of SaaS startups have reshaped the market. Incumbent client/server technologies have lost their
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How to Decide With Speed and Conviction

A startup’s competitive advantage is execution speed. That quickness stems from a CEO’s ability to decide and this ability separates the great from the good. According to a recently published Harvard Business Review article, one of the four key behaviors distinguishing exceptional CEOs is deciding with speed and conviction.

[We] discovered that high-performing CEOs do not necessarily stand out for making great decisions all the time; rather, they stand out for being more decisive. They make decisions earlier, faster, and with greater conviction.

Because the CEO is the nexus of the company, it’s easy for them to become a bottleneck. By deciding, they push the organization forward. The converse is also true. When a CEO defers a decision, the entire organization waits. Over time, the business may osmose a sluggish culture from its leadership. When critiquing leaders with poor decisiveness, management teams focus on swiftness. 94% of CEOs with Continue reading "How to Decide With Speed and Conviction"

Monte Carlo Simulations of Inside and Outside Sales Teams in a SaaS Startup

Recently, a VP of sales told me about the way he views the dynamic between inside and outside sales. Inside sales is the drumbeat, a highly predictable sales organization whose consistency enables outside sales to swing for the fences. I never heard it expressed quite this way, but I do think there’s some truth to it. To prove it to myself, I ran a Monte Carlo simulation for hypothetical startup.

Monte Carlo simulation uses probability to show how things might evolve for this theoretical business. Each team has a 20% chance of closing a lead. The inside team has a 5% chance in months one and two, and a 10% chance in month 3. The outside team has a 5% chance in months 6 through 9 each.

The inside team books $50,000 annual contracts and the outside team books $500,000 annual contracts. Quota for the inside team is $750,000 per

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Shopify S-1 Analysis – Smiling All the Way to $10B

Shopify is an exceptional business. There are not many software companies who can nearly quadruple their enterprise value in two years. But Shopify has grown from $2.7B in enterprise value to more than $10B. What are the metrics behind this behemoth?

First, let’s describe the company a bit. Shopify provides e-commerce infrastructure to merchants. They generate revenue in two ways: subscriptions and merchant services. Merchants pay subscription to rent the software. They pay merchant services for payment fees and other costs that increases the function of the amount of stuff they sell, or Gross Merchandise Value (GMV).

Since 2013, Shopify GMV has 10xed from $1.6B to $15.4B. The merchant population has nearly doubled to 201,000 from 120,000. In that time, revenue has increased from $40M to $389M.

Shopify has been able to sustain a greater than 90% growth rate for each of the last four years. This

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Decision-Making Auditing

How do you help someone when that person knows substantially more about the question than you do? This is one of the most fundamental and frequent questions in management. I came across it first as a product manager. Then as a manager of teams. And last as a board member. In each of these situations, have interacted with people who knew substantially more about their area of expertise.

There are lots of pitfalls when answering the question, “what do you think?” I know, because I’ve suffered through all of them. Whether it’s arguing by analogy, talking about a bike rack, or arguing with a false sense of confidence based purely on opinion/instinct, each of these reponses has a critical flaw.

Ultimately, I’ve landed on a strategy I call decision making auditing. I’ll never know as much about a company’s operations or strategy or a sector as a founder/management Continue reading "Decision-Making Auditing"

How Much Should A SaaS Startup Invest in Sales & Marketing?

How much should a SaaS startup invest in sales and marketing at different stages of the business? This is a very nuanced question, but benchmarks do provide some guidance for what is reasonable. Sales and marketing investment depends on many different factors including establishing product market fit, the business’s sales model (inside, field, freemium), and not least, cash balance and fundraising capacity.

The chart above shows the sales and marketing investment of publicly traded software companies at different revenue levels. It is a box plot, which means the top and bottom of the box represent the 25th and 75th percentiles. The line in the middle is the median, and the dots outside the box are outliers.

The box marked revenue range 10 indicates the median publicly traded company at between $5M and $10M of revenue spent about 90% of revenue on sales and marketing.

Looking in the outer revenue ranges Continue reading "How Much Should A SaaS Startup Invest in Sales & Marketing?"

Ownership – A Defining Trait of a Leader

One of the hardest things for me is to admit is when I’m wrong. It’s hard first to admit it to myself. But harder yet is to admit the error to others. It could be my wife or my colleagues. Most challenging of all is owning the error in a public forum. But admitting mistakes is a key defining attribute of a leader. Owning the mistake accomplishes one critical thing. It builds trust, because it reinforces a fundamental characteristic of our humanity. We are all fallible.

I’ve been reading quite a bit about leadership recently, and like many others, I’m fascinated by leadership under great pressure, so I read about Navy SEALS. The stories of heroism under enemy fire inspire me. Extreme Ownership is one of those books. Unlike many others, it stands out because in the first chapter is admission of failure.

The author, Jocko Willink, is fearsome. Watch Continue reading "Ownership – A Defining Trait of a Leader"