OK, can we now say it, the rage around product led growth (PLG) companies and the enormous valuation multiples relative to top-down enterprise sales cos was a ZIRP phenomenon. We now have post-ZIRP hangover and lots of cleanup for many a PLG 🦄 restructuring to go enterprise. Sure it’s an absolutely amazing mousetrap to acquire users top of funnel and convert to customers, but it’s also just as easy to churn! Recently Airtable, which IMO, is kicking ass with rumored ARR of around $150M, did a reset to focus more on enterprise. The only unfortunate thing is the last round valuation was at $11B which will be tough to grow into. Netlify also did a reorg a few months ago along with a number of others.

Late last year, we made a conscious decision to evolve the business plan to expand beyond our core Netlify product, and introduce a web development platform that serves the needs of not only developers (historically our core audience), but also Enterprise Architects and Marketers. As we’ve shared with you in many Kickstart meetings and Town Hall’s, we have been building a differentiated vision that is the right one for the long term success of Netlify. Our acquisitions of Gatsby and Stackbit have been a significant part of this fundamental evolution.

Now that the bloom is off the rose, we have Product Led Sales (PLS), the natural evolution of Product Led Growth (PLG) vs. just plain old Sales Led.

Enough with the acronyms 🤯 - PLG, PLS, Sales Led - it’s just business.

Build a product people need and can’t live without.

Sell the product.

Time to value matters.

That’s it - sell in the most efficient way possible for the price you will extract. A top down enterprise sales model will not work for $10k ACVs for example.

As I’ve always said PLG is a continuum, and all roads eventually lead to steak 🥩 dinnahs and enterprise sales.

This Battery report on the state of enterprise spending sums it up quite well:

Same with this post from Gergely who writes the The Pragmatic Engineer .

You have to remember the easier it is to onboard and self serve, the easier it is to offboard and stop paying.

Speaking of Gergely Orosz , he reached out to me this week to comment on infra startups and pace of shutdowns from his latest newsletter (excerpt from The Pulse #63) - excerpt below from The Pragmatic Engineer (my comments in italics)

Are we about to see a spike in startup shutdowns?

In February, I pointed to signs that suggested a mass extinction event for startups could occur in the second half of this year. From The Scoop #38:

“I’ve been observing a few trends around pre-seed and seed-stage startups, through some of my investments and by talking with fellow angel investors:

• Startups that raised Pre-seed or Seed rounds in 2020-21 are running out of money.

• Many of these startups have not yet found convincing product-market-fits (PMF.) They have a product but not enough customers, or can’t retain enough of them.

• Startups with no PMF and facing financial pressure have two options; pivot and hope for a PMF, or try to get acquired.”

Investor Ed Sim also predicted last December that “lots of startups who raised capital in the height of the market will shut down as there are no more acquihires.”

I am gathering several signals that startup shutdowns are accelerating. I was talking with a founder in the developer infrastructure platforms space who has a healthy scaleup, with a large-enough “war chest.” They shared:

“I’ve had more M&A offers come to me in the past 3 weeks, than the past 3 years – combined! 

So many companies have run out of money, and have weeks of runway left. Some have VCs paying their bills, until they can – hopefully – find acquirers. The offers are getting lower and lower: there are companies with a decent market share that are alright accepting a 1x revenue, in stock, just to sell off this asset.”

Infra startups are seemingly in a lot more trouble than other segments. The same founder told me they are seeing an alarming number of devops infra startups running out of money. But these are companies with products and customers, some which are pretty large, even from among Big Tech. If these dev tools startups are unable to find a seller who takes over and ensures business continuity, customers will find themselves in deep trouble.

This is what Ed Sim, a partner at Boldstart Ventures, and author of the What's 🔥 in Enterprise IT/VC newsletter told me:

“For infra startups, the past few years have been a golden age. A few years ago, it was still ‘hey you can never make money from dev tools,’ and this changed to ‘hey ma, I have lots of git stars so I can raise $10M!’

But GitHub stars don’t equal revenue. Open source downloads do not equal revenue. Numbers of users do not equal revenue. Revenue is revenue!

And then look at how IT budgets are all about vendor consolidation, these days. We have too many dev tools products out there. Look at GitLab as an example of a company that is doing well, thanks to consolidating lots of devtools, so companies can just buy straight from them.

This is just the beginning of the pain that devtools companies will face.

But here’s the silver lining, any new companies starting now will start with a lean and efficient team – and they will make sure to have a revenue focus from their early days, or a clear path to monetization. Gone are the days of “let’s throw an open source project out there, see what happens and think through how to monetize.” Look at examples like the license change from HashiCorp; we all know OSS is a marketing platform for most and if you’re going down that path, there’d better be a well-thought out plan to migrate folks to paying over time. In this new batch, we will see much better companies built.”

Reflecting on this, I cannot unsee how many developer tools startups that raised millions in 2020-2022 are struggling and shutting down. Just look at how Rome Tools shut down two years after raising $4.5M and aiming to build the “toolchain of the web.”

As always, 🙏🏼 for reading and please share with your friends and colleagues.

Scaling Startups

1. Best founders still responding to customers at lightning speed (Ryan Petersen - Flexport)

   The CEO of Atlassian What's App'd me to help us get better search in Confluence, saying he wrote the first code for it and it's his fault if it's not good enough! Amazing when the head of a giant company still cares like that. Founder led companies ftw!!

2. How to organize your B2B growth marketing team - must read from Emily Kramer (former marketing leaders at Asana, Box, Intercom, Carta, & Scalyr)

3. Specialists or generalist funds? Who performs better? Some good commentary 🧵

Enterprise Tech

1. Deep thoughts on LLMs from Andrej Karpathy, founding member OpenAI

2. 💯 we will surely live in a multiple LLM world where an enterprise workflow may include several different LLMs from public API calls to privately trained - only caveat here is Clem has a dog in the hunt since Hugging Face is the model hoster but regardless he is 1000% right…which is why LLM investing is not a seed VC’s game

3. The 💰 slide from Battery enterprise spending survey - shows the pace of cloud software spend for AI/ML accelerating - notice the huge change in spend intentions from Q1 this year to Q3 this year from 35% to 59%. Overall respondents expect to deploy $1.5B in AI/ML budget. To be clear, this is only representative of 100 CIOs with $35B of spend…it’s safe to assume this number is much much larger

4. Intelligent Application 40 from Madrona - good mix of old and new startups - read for trends, themes

5. Charity Majors from Honeycomb nails it for what does LLMs mean for software development?

   But generative AI is about to turn all of these assumptions upside down. All of a sudden, writing software is as easy as sneezing. Anyone can use ChatGPT or other tools to generate reams of code in seconds. But understanding it, owning it, operating it, extending and maintaining it... all of these are more challenging than ever, because in the past, the way most of us learned to understand software was by writing it.

   What can we possibly do to make sure our code makes sense and works, and is extendable and maintainable (and our code base is consistent and comprehensible) when we didn’t go through the process of writing it? Well, we are in the early days of figuring that out, too. 🙃

   If you’re an engineer who cares about your craft: do code reviews. Follow coding standards and conventions. Write (or generate) tests for it. But ultimately, the only way you can know for sure whether or not it works is to ship it to production and watch what happens.

   This has always been true, by the way. It’s just more true now.

   If you’re an engineer adjusting to the brave new era: take some of that time you used to spend writing lines of code and reinvest it back into understanding, shipping under controlled circumstances, and observing. This means instrumenting your code with intention, and inspecting its output.

6. AI maturing - one of fastest out of gates, Jasper.ai, has found a new CEO - notice commentary - Specifically we’ve become a platform mid-market and enterprises can trust - yep, you guessed it - more 🥩 dinnahs 🤣

   Big news from the @heyjasperai camp today. I’ve hired @timyoung on as the new CEO of Jasper and I couldn’t be more excited.

   Over the last year, we have shifted our focus from a writing assistant to becoming a true AI copilot for marketing teams. Specifically, we’ve become a platform mid-market and enterprises can trust with on-brand, high-performing marketing content. These are our fastest growing segments and we love to build for them. I've spent a lot of time thinking about what it takes to go from a hot startup to an enduring enterprise grade scale-up. It's clear that Jasper needs someone who's been down this road before.

   And this from The Information - competition has heated up as limited moat on wrapper around OpenAI

   AI darling Jasper may have fallen from grace -- it recently cut the internal value of its common shares by 20% and slashed its 2023 ARR projections of $140MM by at least 30%. It could signal a reversal of AI hype.

7. The future is bright for internal developer portals - Gartner’s latest report

   We predict by 2026, 75% of organizations with platform engineering teams will provide internal developer portals to improve developer experience and accelerate product innovation, up from 45% in 2023.
   
   Gartner’s 2022-2024 Technology Adoption Roadmap for IT Leaders Survey shows internal developer portals as the most frequently piloted technology of the 11 shortlisted technologies. The reason is clear - Improving developer experience has become a critical priority for software engineering leaders, with 58% reporting that it’s critical to the C-suite at their organizations.

8. 👇🏼 words of wisdom from founder of Honeycomb 🧵

   Over the last six months, SumoLogic, NewRelic, and Splunk have all been sold off to private equity firms (or noted tech graveyard Cisco). I think it's harder than people realize to innovate for the next generation of observability when you were built to solve the last one…

9. 👇🏼Must watch interview with Lex and Zuck in the metaverse, yes, that same metaverse where Zuck looked like a cartoon character - now with new tech using Codec avatars which are photo realistic , 1 year later watch, listen, learn 🤯 - what will enterprise use cases be. Not just doing a call but being together in meetings where you can blend together real people with avatars with AIs, play games, etc.

Markets

1. What’s ahead