So Cloudflare is one of our hero Cloud / SaaS companies and even under tougher macro conditions, still grew a stunning 37% at $1.2 Billion in ARR!

But it’s getting harder for Cloudflare, just like it is for many of us. 

The toughest metric is new customers.

While NRR remains high, new customer growth as slowed to 13%, down from 24% a year ago and 32% in 2021.  That’s probably a good summary of how it is for many of us. 

Existing customers remain happy, and if they are doing well, will buy more.  But new business is a lot tougher than 12 months ago, let alone 24.

Founder CEO Matthew Prince was refreshingly honest about what was happening in sales.  And I think it’s also telling, as it summarizes what has happened all across SaaS sales in the past 24 months:

Their top reps are still closing, and closing well — at 129% of quota.  And their productivity is only down 1%. “The top 15% of our sellers have achieved 129% of quota over the last four quarters.”

But … 100 reps essentially sold nothing.  They only contributed 4% of reps.  Yikes. 

But I’m seeing that at many SaaS companies today, as the best keep on selling … but many of the rest struggle in a world that is no longer order taking.

So personally, with SaaStr Fund, I am what is called a “Solo GP”. 

I’m the only general partner, and that means most of the eventual gains from any investment do go to me. The partners themselves get to keep roughly 20% of the gains (their own investors, the Limited Partners, keep 80% in most cases).

So if SaaStr Fund is lucky enough to invest enough to own say 10% of your startup, that’s sort of like me owning 2% personally.  (20% of that 10%).  There are some important nuances here, but it’s close enough to accurate for founders to understand.

But the more partners there are, and the less equal partners there are, and the bigger the fund, the more this math radically changes.

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

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In scaling the cash-flow side of SaaS, there’s almost nothing more powerful than annual contracts combined with prepaid cash.  

It’s just such a huge benefit.  At least — on paper. 

Done right, you get all the cash up-front, and your churn, almost by definition, goes down. Because the earliest chance the customer has to churn is 12 months hence.  Even longer for a 24 month deal.

So get pre-paid annual deals whenever possible. 

If … if … they are the natural and right way to go on any given deal.

But … to go to annual pricing or not … 

It’s a bit of a false choice for most vendors.  Because the world already works certain ways here based on the context:

Bigger companies want to sign annual contracts, especially in exchange for discounts.  At least, once you have enough of a mini-brand to be trusted.  It’s how big company procurement and budgeting processes work. 

And … Most small businesses and individuals generally want to pay monthly on their credit cards.  Even if you provide an annual discount.  

So there is a natural continuum of how customers like to pay, and how they are comfortable paying.

Nick Mehta, CEO of Gainsight, shares part two of his 10 top mistakes in 10 years at the company. 

The first five mistakes many startups make include: 

1. Not holding leaders to the highest standard
2. Not betting on your team 
3. Not scaling based on real leading indicators
4. Not standardizing pricing and establishing systems early on
5. Not investing in digital customer success early on

So let’s jump into part two of Nick’s ten mistakes and lessons learned over the years.

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

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Hiring too junior a resource to own product is almost always a huge mistake — 9 times out of 10.

You can take a lot of “stretch” risk in sales. Sales breeds leadership.

But what I’ve seen time and time again is junior individual contribution “product managers” who haven’t actually owned anything. And who certainly haven’t owned enough.

A VP of Product should be a transformational hire. Someone to take over the informal, unscaleable way you pick, track, and rebuild features; to drive engineering to get there; and also, to live at the intersection of sales, customer success, and dev.

A junior hire just hasn’t done it, and can’t command the respect of the team (nor often the customers).

A “head” of product that sales, engineering, and customer success won’t respect … can’t get the job done.

A “head” of product that hasn’t done at least some of it before won’t command that respect.

You can’t go too junior here.

Better to spend an extra $0Xk a year here, and a few more shares, to get the hire you really need.

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