Joost De Bot’s Post

People have been sending me "SaaS is Dead" articles and posts almost every day in the last month. That makes for better clickbait headlines than the real truth that "SaaS is Changing, and It's Complicated." Here is how I see it this year: 1) Most people who say SaaS is Dead are VC investors. I can see why investors say it, since they can't just throw money at B2B SaaS startups and expect them to grow fast forever. And there are almost no big exits (IPOs, strategic), so their crazy big VC bets aren't paying off in huge exits with crazy valuations. Their "greater fool" exit plan doesn't work now, since PE investors are the ones buying up most SaaS companies, and they aren't anyone's fool. The SaaS business is still solid and growing, but it's not crazy anymore. This is great news for founders who bootstrapped or didn't raise big VC funding. It's not good for VCs right now. They are moving on to AI bets and telling us "SaaS is Dead." 2) The SaaS business is growing fine and getting healthier. The global B2B SaaS market is still growing at 20% this year. Companies of every size depend on software to run their businesses. Software is still eating the world. It's getting healthier too, because SaaS companies are getting more profitable (or trying to). The "Rule of 40" with rational profits and growth rates isn't sexy, but it's still better than most other businesses. SaaS companies still expect to be valued at multiples of revenue, not multiples of profits. 3) The SaaS business is changing. B2B software buyers are pulling back and getting more demanding. Some vertical SaaS companies are feeling the headwinds of the economic slowdown in their industries. Software is easier to build, so copycat competitors and all-in-one expanders are proliferating. And AI is finding its way into SaaS products. It's making software businesses much more efficient. And it's already frustrating many GTM tactics that used to work, such as outbound, social content, SEO and more. The software business has always gone through huge technical and business model shifts. It just has been pretty steady for the last 10 years, which was an exception. So ride the waves of change like you used to when you started. 4) Some things are harder--and some are easier. Most SaaS businesses struggle to keep their pipelines full and close at the rates they did 2 years ago. There are more competitors in most markets, some with big funding. Blended office/remote models are difficult to calibrate. However, software is becoming easier to build, scale, and maintain with better tools, great APIs, and AI assistance for coders. And it's easier to hire top tech talent in the US and everywhere else. SaaS isn't dead. It just changing in complicated ways. As Yogi Berra said, the future ain't what it used to be. How do you see the SaaS game evolving? #practicalfounders

The SaaS apocalypse is coming. Within the next 18 months, I suspect 50% of VC-funded SaaS companies will fail. Here’s why and what YOU need to do to survive (broken down by role): BACKGROUND The SaaS industry is facing a major meltdown. It’s not just that deal sizes (-21%) and close rates (-18%) are down. But in the last 5-7 years: 1. Cost of entry has continued to drop — a small team can now create a SaaS app fast with off-the-shelf tech. 2. VC was frothy until 2022 – a lot of teams got funded to go after the same opportunities 3. A bunch of entrepreneurs who made money in the late 2010s are back with new ventures. Your competition knows how to execute! The result shouldn’t be a surprise. There are now 1000’s of companies going after the same customers. In many categories, there are 10 similar companies! Buyers are fatigued. They are hearing the same message every day. So what do we do? Are we doomed to see a bunch of companies blow up? Unfortunately, yes. Many companies will not survive. The companies that win, will need to adjust to the “new normal”. Here’s how (broken down by role): CEOS and BOARDS: Decide if you are a high-value or low-cost provider. You can’t be both. If you are a high-value provider, make sure you have a unique take on the PROBLEM you solve, your SOLUTION, and why it is UNIQUE. Resist the urge to commoditize and focus on price! Focus on customers who will see and appreciate your value. If you are the low-cost provider, then embrace a fast, low-touch sales and service model. Don’t play games with high prices and negotiation. Embrace speed, volume, and a low price! CRO, CMO, and REVOPS: Know where and why you win. This isn’t the time to insist “you can serve everyone”. This market demands focus. Focus on the areas of the market where you have true advantage. Figure out the true purchase drivers of your best customers. Distinguish good targets from bad ones. Then focus your efforts, messaging and product on ONLY those good targets. If you’re not unique in the market, then be differentiated in segments where you can win. (Hint: if you’re a young company, you probably aren’t going to win both Enterprise and SMB segments at the same time!) SALES REPS: “Segmentation” isn’t just for marketing anymore. Smart sales teams recognize patterns in the customers who buy. We need to double down on this thinking. Yes, a cute dog picture can maybe get a conversation started…but is it a great prospect? Are they going to buy? Let’s not fool ourselves with the “sugar rush” of empty meetings. Today’s market demands QUALITY of contact vs quantity. Know what kind of customers buy, then go after them and ONLY them. TAKEAWAY It’s a scary time in our industry. The competition is real and they are as hungry as we are. We can’t sell to everyone - or we’ll sound like everyone else we’re competing with. More markets is not the answer. More focus is.

The SaaS apocalypse is coming. Within the next 18 months, I suspect 50% of VC-funded SaaS companies will fail. Here’s why and what YOU need to do to survive (broken down by role): BACKGROUND The SaaS industry is facing a major meltdown. It’s not just that deal sizes (-21%) and close rates (-18%) are down. But in the last 5-7 years: 1. Cost of entry has continued to drop — a small team can now create a SaaS app fast with off-the-shelf tech. 2. VC was frothy until 2022 – a lot of teams got funded to go after the same opportunities 3. A bunch of entrepreneurs who made money in the late 2010s are back with new ventures. Your competition knows how to execute! The result shouldn’t be a surprise. There are now 1000’s of companies going after the same customers. In many categories, there are 10 similar companies! Buyers are fatigued. They are hearing the same message every day. So what do we do? Are we doomed to see a bunch of companies blow up? Unfortunately, yes. Many companies will not survive. The companies that win, will need to adjust to the “new normal”. Here’s how (broken down by role): CEOS and BOARDS: Decide if you are a high-value or low-cost provider. You can’t be both. If you are a high-value provider, make sure you have a unique take on the PROBLEM you solve, your SOLUTION, and why it is UNIQUE. Resist the urge to commoditize and focus on price! Focus on customers who will see and appreciate your value. If you are the low-cost provider, then embrace a fast, low-touch sales and service model. Don’t play games with high prices and negotiation. Embrace speed, volume, and a low price! CRO, CMO, and REVOPS: Know where and why you win. This isn’t the time to insist “you can serve everyone”. This market demands focus. Focus on the areas of the market where you have true advantage. Figure out the true purchase drivers of your best customers. Distinguish good targets from bad ones. Then focus your efforts, messaging and product on ONLY those good targets. If you’re not unique in the market, then be differentiated in segments where you can win. (Hint: if you’re a young company, you probably aren’t going to win both Enterprise and SMB segments at the same time!) SALES REPS: “Segmentation” isn’t just for marketing anymore. Smart sales teams recognize patterns in the customers who buy. We need to double down on this thinking. Yes, a cute dog picture can maybe get a conversation started…but is it a great prospect? Are they going to buy? Let’s not fool ourselves with the “sugar rush” of empty meetings. Today’s market demands QUALITY of contact vs quantity. Know what kind of customers buy, then go after them and ONLY them. TAKEAWAY It’s a scary time in our industry. The competition is real and they are as hungry as we are. We can’t sell to everyone - or we’ll sound like everyone else we’re competing with. More markets is not the answer. More focus is.

The SaaS apocalypse is coming. Within the next 18 months, I suspect 50% of VC-funded SaaS companies will fail. Here’s why and what YOU need to do to survive (broken down by role): BACKGROUND The SaaS industry is facing a major meltdown. It’s not just that deal sizes (-21%) and close rates (-18%) are down. But in the last 5-7 years: 1. Cost of entry has continued to drop — a small team can now create a SaaS app fast with off-the-shelf tech. 2. VC was frothy until 2022 – a lot of teams got funded to go after the same opportunities 3. A bunch of entrepreneurs who made money in the late 2010s are back with new ventures. Your competition knows how to execute! The result shouldn’t be a surprise. There are now 1000’s of companies going after the same customers. In many categories, there are 10 similar companies! Buyers are fatigued. They are hearing the same message every day. So what do we do? Are we doomed to see a bunch of companies blow up? Unfortunately, yes. Many companies will not survive. The companies that win, will need to adjust to the “new normal”. Here’s how (broken down by role): CEOS and BOARDS: Decide if you are a high-value or low-cost provider. You can’t be both. If you are a high-value provider, make sure you have a unique take on the PROBLEM you solve, your SOLUTION, and why it is UNIQUE. Resist the urge to commoditize and focus on price! Focus on customers who will see and appreciate your value. If you are the low-cost provider, then embrace a fast, low-touch sales and service model. Don’t play games with high prices and negotiation. Embrace speed, volume, and a low price! CRO, CMO, and REVOPS: Know where and why you win. This isn’t the time to insist “you can serve everyone”. This market demands focus. Focus on the areas of the market where you have true advantage. Figure out the true purchase drivers of your best customers. Distinguish good targets from bad ones. Then focus your efforts, messaging and product on ONLY those good targets. If you’re not unique in the market, then be differentiated in segments where you can win. (Hint: if you’re a young company, you probably aren’t going to win both Enterprise and SMB segments at the same time!) SALES REPS: “Segmentation” isn’t just for marketing anymore. Smart sales teams recognize patterns in the customers who buy. We need to double down on this thinking. Yes, a cute dog picture can maybe get a conversation started…but is it a great prospect? Are they going to buy? Let’s not fool ourselves with the “sugar rush” of empty meetings. Today’s market demands QUALITY of contact vs quantity. Know what kind of customers buy, then go after them and ONLY them. TAKEAWAY It’s a scary time in our industry. The competition is real and they are as hungry as we are. We can’t sell to everyone - or we’ll sound like everyone else we’re competing with. More markets is not the answer. More focus is.

I can judge the experience level of a startup founder or investor by how they use SaaS benchmarks. Newbies learn the general metrics and averages; experienced founders go much deeper and find their own way. The great thing about the SaaS business model is that there are useful metrics for all the important factors in the business. MRR, ACV, CAC, LTV, NRR, churn, demo conversion, CAC efficiency, growth, profitability, expense % of revenue. There are standard benchmarks in SaaS for all of those, which is a good starting point. But they are averages of how other companies have done it in the past. Your mileage will vary a little or a lot. - New startups are very different than mature businesses. - Selling to an SMB is very different from selling to an enterprise. - Overfunded businesses are very different than bootstrapped. - SaaS businesses started 10 years ago are different than new companies. - A business based in London or Kansas City is very different than one in New York or Silicon Valley. - Most vertical SaaS companies have industry-specific metrics that don't apply to other industries. 1) Beginner founders take the general benchmark metrics at face value, which may not be very useful for their situation or their specific businesses. "What's a good churn rate?" is a common question I hear from founders. Well, it depends. How big is your company? What's your ACV? Who's your typical customer? What's your CAC? How fast do you want to grow? Horizontal or vertical focus? Each one of those answers will skew a "good" churn rate for your current company one way or the other. And many new SaaS investors don't always get the context they need to be savvy about why metrics can be different for a specific companies. 2) Experienced founders know that the benchmarks are useful generalizations and adapt their target SaaS metrics for their specific case. Then they go deeper with combined metrics that show them what's really going on in their business. Like CAC by channel, revenue retention by customer segment, conversion by sales rep, and CAC payback period with gross margin. These aren't complicated, but they are more useful once you're out of the startup stage. 3) The savviest SaaS founders know their metrics and go beyond to break the rules in focused ways. If you have an efficient organic funnel and a product-led motion with a free trial, you can have higher logo churn versus a broad average benchmark, for example. Learn the rules like a pro so you can break them like an artist, as Pablo Picasso said. There is some leeway in all standard SaaS benchmarks to adjust them for your business. Active SaaS buyers pay higher multiples of revenue for companies with higher-than-typical metrics for their specific situation. Which SaaS benchmark average do you think is misused the most? #practicalfounders