How to Identify a SaaS Market that Machine Learning Will Disrupt

In SaaS, machine learning has become an essential component to many different products. Whether it’s automating responses to inbound sales queries, identifying expense reports for audit, or surfacing anomalies in data, machine learning improves workflow software. To date, most software imbued with machine learning reduces costs rather than increase revenues. Why is this the case? Because machine learning is focused on efficiency gains. First, to train a machine learning model requires large amounts of data. Repetitive workflow processes produce this data. With enough data, a machine learning model can be applied to automate the workflow. For example, it’s straightforward to build machine learning models to automatically answer password reset questions. Second, automation reduce costs because they eliminate the need to hire additional people to handle more work. A bot replies to login reset questions with an automated response in a link to a knowledge base, freeing customer support reps to Continue reading "How to Identify a SaaS Market that Machine Learning Will Disrupt"

Yearning for the Vast and Endless Sea

“My goal is to make you love rowing.” That’s how my first rowing started. I had never picked up an oar or stepped into a racing shell before. With 100 other freshman men, I had assembled at the boathouse along the maple and conifer lined Connecticut River. I’ll never forget those words. I had played many sports before. In every other case, the focus, the mission, the motivation had always been to win. This was different. Over the next four years, I came to understand why our coach had started the freshman season this way. Rowing is a brutal and arduous sport. After the 3, 2, 1 count, two eight men teams and one coxswain - who steers the boat and motivates the crew - place their oars in the water and pull with all their might. As the boat leaves the starting point and lurches into the water, Continue reading "Yearning for the Vast and Endless Sea"

Ten Year’s Worth of Learnings About Pricing

Last week, I shared a presentation with an executive team at a large public SaaS company on everything I’ve learned about pricing. Here’s a summary of the frameworks and theory that I’ve aggregated over a decade of investing in startups. Why do we set prices? Setting aside the important reasons of generating revenue and maintaining solvency for a business, there are many other reasons to set price. Price reinforces brand because price telegraphs whether a product is a premium product or a value product. Price differentiates products in the market and can be used as a go-to-market strategy. Underprice the competition to gain share. There are many others too. There are four components to pricing: 1. Strategy: what is the goal of the price? 2. Philosophy: how does the company price relative to costs? 3. Structure: what is the pricing rubric? 4. Positioning: how best to communicate the price? Strategy
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An Era of Fundamental and Massive Change – The Capital Markets Innovation of the ICO

In December 2017, the amount raised in ICOs nearly equaled the amount raised by Series A investments globally. The technology innovation catalyzed by Bitcoin and Blockchain is creating many multibillion dollar economies quickly. The ICO market today bears many similarities to the dotcom era. Startups can raise hundreds of millions of dollars on an idea. Twenty years ago, the idea had to be sketched on a napkin. Today, the protocol must be detailed in a white paper. But the ability to access huge amounts of capital at a similarly nascent stage is identical. Like the dotcom era, most of the companies raising huge sums in ICOs will not endure. But they are a critical part of the evolution and maturation of the market and the technology, because these businesses will further the ecosystem to finding valuable applications of distributed ledgers and databases. In the early 2000s, the billions of dollars Continue reading "An Era of Fundamental and Massive Change – The Capital Markets Innovation of the ICO"

7 Predictions for SaaS in 2018

Below are 7 predictions about the startup software ecosystem. How many of them do you agree with?
  1. The tax holiday for repatriation creates one of the most active M&A environments of the past ten years. The repatriation holiday is part of the new tax plan. It permit companies to bring US dollars held abroad (from software sales in other countries) back to the US at a lower tax rate than before. The scale is enormous. Apple could repatriate $252B, Cisco $65B, Google $55B. That cash could be used for dividends, share buy backs and acquisitions. Several landscape altering SaaS acquisitions will come to fruition because of cash availability from repatriation and because there are enough public SaaS companies at scale to add material revenue and market cap to buyers. Some ideas: Google buys Salesforce. Microsoft buys Workday. Oracle buys ServiceNow. There are now 5 publicly traded software companies worth more Continue reading "7 Predictions for SaaS in 2018"

Jettisoning the Assumptions of Last Year

Snowflake Image by Alexey-Kljatov.jpg There’s a crisis in the scientific academic world. It’s called the Replication Crisis. Scientists have found that they cannot replicate the results published by many scientific studies. The same thing is happening in the world of business. Over the last 15 years I’ve several hundred business books, and I’ve written one. Across those 15 years, one of the most interesting is a book called The Management Myth, which traces the history of management science back to its less than solid origins. The book illuminates the history of scientific management and Taylorism, and supplies evidence that much the original data underpinning these theories was fabricated. I was curious if this was a broader trend, and it may be. I found other cases. More recent examples include Scientific American [debunking the theory behind Jim Collin’s work, Good to Great. A team of academics failed to reproduce Kahneman’s work on social priming Continue reading "Jettisoning the Assumptions of Last Year"

Premoney vs Postmoney – Which is a Better Technique for Negotiating?

When negotiating your next fundraising round, should you talk valuation in premoney terms or postmoney terms? Premoney is the valuation before the investment, employee stock option pool (ESOP) expansion, debt-to-equity conversion and investment. Postmoney is the value of the business after all that. As an investor, postmoney is simpler. Despite the improved simplicity, I don’t think the industry is going to move to postmoney anytime soon. Why are postmoney conversations simpler? Because the valuation of the business is fixed. The value of the business doesn’t float from variables like pro-rata participation, ESOP expansion and debt-to-equity conversion. Existing investors, also called insiders, often have negotiated for pro-rata rights. Pro-rata is the right but not obligation to invest in future rounds to maintain the same ownership. Lots of pro-rata rights means a larger round size. ESOP expansion also increases pro-rata investment. With the rise of debt as a seed investment vehicle, debt-to-equity Continue reading "Premoney vs Postmoney – Which is a Better Technique for Negotiating?"