Hey SaaStr Community,

And happy holidays!

I’ve never once done a traditional “predictions” post on SaaStr, but there has been so much going on this year, I thought FWIW I’d at least share what I’ve been thinking about a lot.  And putting my money on.

Five perhaps somewhat obvious predictions for 2024:

1. Lower interest rates lead to SaaS multiple reflation, likely during 2H’24

It’s not clear how truly tight the link is between interest rates and SaaS multiples, but the overall correlation is clear. Lower inflation and the fed lowering interest rates should lead to an expansion of SaaS multiples.  There are I think strong arguments that even today, SaaS companies are overvalued, and I get it.  But in my experience in SaaS for 18+ years, things roar back after systematic shocks.  I predict the same as interest rates fall.  Even if a contraction in buying more SaaS products really was a far bigger issue than interest rates in reality the past 18-24 months.

2. Lapping tougher times helps impacted leaders bounce back, to a point

We are lapping App Layoffs and tougher times. Industry leaders, from Outreach to Gong, to Zoominfo and Box, should see a boost in 2024. It’s just math. Seat contractions and app layoffs are behind us. 2024 may not be great, but for folks who are leaders in their categories, everyone likely will point to some quarter in 2023 as the low point.

3. There is an “AI Innovation Pause” in B2B SaaS

AI overall is one of the greatest forces of nature we’ve seen in technology and software. But many SaaS leaders I talk to are still learning and experimenting on a few clear vectors. It’s not clear there are a ton of great ideas on what to do with AI APIs that aren’t already being tried out. AI is an unstoppable force but we may see the innovation side take a partial pause in 2024. For example, in the contact center, we’ll see the AI excitement morph into nuts-and-bolds automation-based outcomes.

There are some real mysteries in SaaS. Even now that I understand them, I still see them as a bit of a mystery. Let me list a few:

• Why do customers buy a ton of seats up front, when they could start with a few and buy more later?
• Why do customers buy so much on the last day of the month? Great for sales reps looking to hit their quota. But why are customers in on it?
• And the Greatest Mystery of All: Why The Heck Do Customers Buy So Much on December 31?

I mean think about it:

>> Nothing is going to get implemented at the very end of the year, even if it is purchased. Why bother buying then, if you’re not ready to deploy?

>> No one is left in the procurement department to issue a P.O.

>> Nothing extra is left in the budget. If there was budget to burn, it would have already been burnt earlier in the month of December.  And even if there is budget left, you generally can’t burn it on a recurring revenue product. 

Because budget generally has to be spent in the timeframe when a product is used.  “Budget burning” works much better in products like Adwords where the expense really can be recognized in December.

>> No one is around. Your purchaser’s boss is off for the holidays. Some people are still working hard in the office — but probably not people that buy and deploy software. I mean, c’mon?

>> No new leads are coming in. Leads dry up at the end of the year, for natural reasons. No one is looking to buy anything new between Christmas and New Year’s.

So apologies in advance to those that disagree with me here. I know some will. But let me tell you what I’ve learned. Mediocre sales teams don’t close much at the very end of the year. Because there’s no intrinsic reason for the customers to buy.

So I know we’ve all become stock market, interest rate, ZIRP and fed experts over the past 24 months.  Just as we were all geniuses in 2021.

So everyone has their crystal ball now on where the markets are headed in SaaS and for Cloud leaders.

Me? I don’t.  I don’t have any idea.

• First, in the history of SaaS, things weren’t always easier when interest rates were lower. It’s not the whole story.
• Second, 2023 was a weird year. Some spaces got hit hard (sales, marketing, etc) but others were barely hit at all (cloud infrastructure, tech outside of SaaS like Monday.com). The pain wasn’t evenly distributed.
• Third, the markets to me at least aren’t as rational as they look

Let’s take a look at two of my favorites, Shopify and Klaviyo. Both had an epic year.  Shopify stock is up a stunning 116% (!) year to date.  With 49% gross margins, and trades at 20x ARR.

And Klaviyo, the #1 player on the Shopify ecosystem? With much faster growth at much higher margins, and 70% of its revenue on the Shopify platform?

It’s down -16% since its IPO this year, and trades at a much lower multiple (8x-ish).

 Despite powering toward $1B ARR at an epic pace, far faster than almost every other SaaS leader.

So we don’t know quite as much about Canva’s metrics and financials as we do SaaS companies that have IPO’d. But we at least know enough to put together 5 Interesting Learnings!

They were $1.7B+ ARR in October, so let’s call it close to $2B at the end of the year, growing 40%+ at that scale –and profitable! (or at least cash flow positive) all just in Year 10 since founding.

That’s … pretty epic.

Let me explain, as this is one of the most disappointing changes in my opinion in “tech” and startups over the last 12-18 months.

Two things together have done many a disservice: the combination of a tougher year for many >>and<< the constant celebration of … quitting. It’s all over LinkedIn and TikTok. I Quit!

There are times when it makes sense to quit. If literally, you’ve given it 100% and have zero traction. If your boss is terrible. Or, on the flip side, if you are presented with such an amazing opportunity, you just have to take it. And look, no one needs to stay in a soulless entry level job longer than necessary.

Those are the times to quit.

But now, people seem to quit far, far earlier:

• Founders with millions in revenue quitting just because it’s harder
• Founders with any happy customers quitting because they’ve “given it a shot”
• Founders phoning it in because it’s harder, rather than doubling down and figuring it out
• VPs quitting because the job was harder than they thought
• Top ICs quitting because their job was a lot harder than last year

For any Cloud and SaaS Founders or execs seeking practical strategies and inspiration to stay ahead of the curve, this session’s for you.

Kiren Sekar, Samsara’s Chief Strategy Officer and founding chief Product Officer shared five lessons he learned along the way from scaling six products to $100M+. The six products/companies Kiren helped scale to $100M that he’ll reference in this playbook include: Bill, Cloudflare, Crowdstrike, Samsara, Snowflake, and Zscaler. 

His five lessons are:

• A single metric that helps guide decisions of when to pivot, when to iterate, and when to pivot. 
• Discovering the entire market and mapping out all potential verticals early in the process. 
• The incredible power and value of the mid-market segment.
• Building customer feedback into the DNA of your product team and products. 
• Going multi-product early. 

Let’s take a closer look at these learnings.

In the latest installment of SaaStr’s What’s New series – where we sit down with the leaders in SaaS and Cloud for the inside scoop on what’s top of mind and what’s new, SaaStr CEO and Jason Lemkin chats with the CEO of ZoomInfo, Henry Schuck.

So, what’s new at ZoomInfo? In this episode, Jason and Henry discuss:

• PLG vs. a sales-led motion, and which is more efficient
• The macro-environment and what to expect next year
• What’s new at ZoomInfo

• SaaStr 710: Running a PLG and Sales-Led Motion at the Same Time: What’s New at ZoomInfo with CEO Henry Schuck and SaaStr CEO and Founder Jason Lemkin                     

• SaaStr 709: 15 Signs You Have A SaaS Metrics Problem (and How to Fix it) with Dave Kellogg, EIR at Balderton Capital                           

• SaaStr 708: The Top 10 Mistakes People Make When Hiring a VP of Sales with SaaStr CEO and Founder Jason Lemkin           

Listen on Apple Podcast, Spotify or Google Podcasts

The average public SaaS company spends about 50% of its revenue on sales and marketing and 20% on engineering and product

I know you want that to be the other way around

It just doesn't work that way

And at least for now, AI isn't changing that

If you have less than 7-8 sales reps and your VP of Sales is

spending a ton of time on their dashboards,

You made a mis-hire. 

Ditto if they also haven't joined all the key meetings in every single key deal

Lessons only time teaches you: 

1/ A great team goes even further than you think

2/ The journey in the end, no matter how long, ends in the blink of an eye

3/ You win being the most committed

4/ Each year compounds to something better than last year.

Even the rough years.

© SaaStr 2023

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