The Latest from SaaStr: The Three Valuation Lows in SaaS

The SaaS Capital Index from SaaS Capital had a summary this week of the 3 low points we’ve seen in SaaS multiples, and this chart puts things in great context:

As you can see above, in the early days of SaaS … it was tough to be a public SaaS company.  Public multiples often were around 4x-5x in 2008, and then the global meltdown came, and public multiples fell to as less than 2x revenue for a while.

Then, well, right after we sold EchoSign to Adobe way back in 2011, things picked up, with a slow with material and steady increase in public multiples from 2012 to 2015.

At 8x or more ARR in the public markets, SaaS all of a sudden for many people, became interesting for the first time. 

It was just too hard to make money at 4x ARR.

And then the “Flash Crash” of 2016 came, our first big hit.  It seemed really bleak when enterprise SaaS spend stopped growing for the first time — albeit briefly.  The markets panicked, and LinkedIn sold itself to Microsoft for what now seems like a bargain.

But buyers came back, and the Flash Crash of ’16 didn’t last.  Multiples basically kepy growing until a peak of about 17x in August-November 2021.

And then, the markets began to crater once again, the biggest fall of our SaaS lifetimes, and hit a local low in November 2022. That’s when SaaS revenue multiples fell back to 6x, the lowest rate since 2013. 

A few basic thoughts:

1. Have every customer have a named customer success rep. Every customer. Yes, this is hard if your price point is low. But it can be done. If every customer knows “Casey” is her rep, and who she can turn to … churn will go down.
2. Measure NPS constantly, and set quarterly goals to drive it up. If you don’t measure it, you can’t improve it. If you haven’t measured your NPS yet, you may be surprised that it is lower than you think.
3. Segment your Customer Success — and Sales — teams. Different size customers need different approaches. If you segment your CS team, you can get folks that specialize in different deal sizes and customer needs. And if you segment your sales team by deal size, the smaller customers will get better attention upfront. Leading to less churn. Don’t lump your smaller customers together with the big ones — or they will churn at a much higher rate.
4. Stop with churn-and-burn deals. Selling deals you can’t service is worse than not closing them at all.
5. Do phone support. No one wants to pick up the phone. But customers that need help want their call answered.
6. Answer all tickets in < 5 minutes. Yes, it can be done. 

This edition of the SaaStr Daily is sponsored in part by SAP

The key to success in any business is growth. Growing your bottom line. Growing your operations. Growing your culture.

But sustained growth requires the right blend of forward-thinking management, intelligent cloud-based technology investments, and strategic financial planning.

Attend the Growth Summit hosted by Fast Company, Inc. and SAP on March 21

Product-led growth is a hot topic. As a startup, you want people to love your product, plain and simple. Getting them to love it is more complicated.

At SaaStr APAC 2023, Matt Vethuis, the VP, APJ at Amplitude, shared his take on how to bring power to your products through a hybrid blend of product and sales-led growth called product-led sales.

Product-led growth is a GTM strategy where the product is the main driver for growth. I.e., your product is helping your customers try, buy, and ultimately grow with it. You want them to fall so deeply in love with your product that they will spend money on it. 

But PLG hasn’t always been the way companies do things. Let’s take a walk down memory lane. 

I hate this. And yet … I’m pretty bad at it myself, I’m sorry.  It’s often a sign of a deal with some good stuff in it, but that doesn’t quite meet the bar.

When I started investing, I vowed to always respond within 24 hours to all follow-up.

And I kept up for 90 days … and then I failed.

There’s no excuse, but here’s the reason: there’s just way too much to manage on the Almost deals. The “No”s are easy. Not a good fit, sorry. The “I’m in”s are easy. So far, on these, I’m pretty much able to say “I’m In” during the first meeting.

Then, there are the large numbers of deals you’d like to do. You love the CEO, it’s just … the market isn’t really there. The numbers aren’t really there. The team isn’t really there. It’s Good, but not Great.

You want to believe. It’s close, but not quite there.

This edition of the SaaStr Daily is sponsored in part by LARK

Lark is a collaboration tool designed to improve team productivity. Get chat, email, video conferencing, calendar, and docs together in one place.

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