Hey SaaStr Community,

And happy (almost) New Year!

So, listen— we know 2023 wasn’t a rough year for everyone. 

Shopify, Canva, Monday and tons of other SaaS leaders especially those less focused on tech and startup customers had big years.  And broader Cloud players had a great year too, from MongoDB to Cloudflare to Azure, if not quite as crazy as at the peak of 2021.

But overall?

Overall … well SaaS and Cloud revenue growth hit record lows per the BVP Cloud Index.

As you can see, even though 2022 was a tough year in the public markets and for valuations, revenue growth still held up reasonably well.  But then in 2023 — it just plummeted.  Further and further as the year went on.

Now, plenty of SaaS leaders saw Q2’23 in particular as their low point, and saw growth reaccelerate at least a smidge from there.  So there is plenty of reason for at least modest optimism for 2024.

And Gartner still predicts overall Cloud spend will grow to record rates in 2024.

But the trend of slowing growth in 2023 wasn’t just a thing, it wasn’t just a blip like the 2016 crash was.  It was an All Time Low.  We’ve always bounced off the lows in SaaS, again and again, over the years.  But at some point, perhaps, Cloud spend will be so saturated, it just has to slow.  I’m betting that’s not 2024-2026.

Still, the trend line does make you worry a smidge.. 

So we’re reaching new levels of efficiency in SaaS — at least in the public markets.

The average public SaaS company now has hit $300,000 in revenue per employee or so on average.

That’s a good metric to think about at scale now.

But what does it mean in practice, when you are well before the IPO stage? :)

Now that I have 5 investments at $200m+ ARR, and they are all basically cash-flow positive (which is necessary today), I’ve seen one clear trend in today’s new efficient world.

Just about everyone at $200m ARR now has about 700 employees or so.

So a little while ago someone that had worked with me many years ago reached out.  He’d lost his job and was looking for something new.  He’d move into a lower paying customer success role, and had a $100k OTE at his last role, where he was laid off.

He’s been searching for months for a new role and was feeling the pressure.

While we hadn’t really kept in touch, I offered him a similar role with significantly higher comp.  My only ask: he own it.  He own the metrics, and really do the work.

He didn’t even hesitate in his response:

”No Thanks.  I Just Really Don’t Want to Work That Hard.”

He’d rather stay out of work, and take a much lower comp package — than own a number.

I sort of dismissed it until I talked with another exec I’d worked with just a little long ago, but really barely knew at all.  We’d only talked twice.  But he’d been laid off and was struggling to find something new.

I suspected I knew a role for him with a great CEO.  It would be risky for me to recommend him to the CEO, but I was willing to try.  I told him though he’d have to roll up his sleeves and do some real work himself at this startup.  Again, he didn’t miss a beat with his answer:

”I Really Only Just Want to Manage People.”

4-5 June, London

The fifth SaaStr Europa in London will attract 3,500+ SaaS executives and investors, a superb selection of speakers, and endless opportunities to network in June of 2024.

 Sept 10-12, SF Bay Area

Join 13,000 Cloud and SaaS Founders, VCs, and Execs for the 10th SaaStr Annual: 3 full days of tactical content, 100’s of workshops, and 1000s of Networking sessions— all to help you scale faster with less stress and more success.

If I had to summarize venture capital today, it would be like this: There is Very Little Oxygen Today Above $200m Valuations

What do I mean?

It’s still a weird world in venture:

Firms are both shutting down and raising new funds.

More entrepreneurs are doing direct investing themselves than ever.

Unicorns are hurting, but — Nasdaq is at an all-time high.

So net net we still see very high levels of seed investment. Folks are still hoping and dreaming that bet, as improbably as it might be, could still do 100x-1000x and becoming the next Datadog, Snowflake, Klaviyo, Samsara, Uber, etc.

But the problem in SaaS especially is that the average public SaaS company is trading for about $2 Billion, and at about 6x ARR.

So what? Well at least in theory, you can still make 100x or more at a $20m valuation if the company ends up worth $2 Billion. Sort of, if you ignore dilution.

So is it possible to be too efficient in SaaS and Cloud?

Maybe. And if so, maybe that’s Digital Ocean. If you haven’t heard of Digital Ocean, ask your developer. Many have used Digital Ocean at the cheaper, simpler version of AWS-Azure-Digital Ocean to get going fast and quickly.

Growth has slowed the past year, but profitability? It’s gotten crazy good.  Or at least, operating margins and free cash flow are.

Digital Ocean is only growing 16% now at $700m ARR, and churn is up and NRR down.  But it’s raining cash, and earnings per share is growing 22% — faster than revenue.

So I think 2023 may mark The End of Customer Success as We Knew It.

What happened? At least 3 core changes:

#1. The Massive Push to Efficiency

As almost every public SaaS company got cash-flow positive and radically more efficient, and most startups had to stretch their dollars much further — customer success took a lot of the brunt. SaaS companies are now simply willing to run a lot more leanly in CS, in many cases hoping to rely on automation, knowledge bases and community to pick up the slack.

The days of $1m per CSM may be long gone. For example, you can see it here in the latest data from Pilot. CS has taken the biggest brunt in layoffs, unfortunately.

#2. The Massive Push of CS into a Sales Function

This is an even bigger change. CS in many ways become “weaponized” by sales and SaaS companies to chasing tough renewals and supporting aggressive upgrades in tougher times.

So be it, but that left even fewer resources and attention on just plain … customer success. Aggressive price increases across the board consumed much CS energy as well.

At a recent Workshop Wednesday, SaaStr founder and CEO Jason Lemkin answered the community’s most pressing questions about SaaS — from investor appetites and IPOs in 2024 to managing and hiring a Head of Sales as a solo founder to AI and the future of customer success. 

Let’s jump right into part one. 

• SaaStr 712: Is AI the Only Thing in SaaS that Anyone Cares About Anymore? Ask-Me-Anything Part 1 with SaaStr CEO and Founder Jason Lemkin                          

• SaaStr 711: 5 Lessons from Scaling Six Products to $100M+ with Samsara's Chief Strategy Officer Kiren Sekar                                  

• 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    

Listen on Apple Podcast, Spotify or Google Podcasts

Small talk with your top performers: fun and bonding 

Small talk with low performers: brutal

You can build a SaaS company from anywhere now.

And we are all distributed. Still, if you are flexible. If you can be anywhere. If you don't need to be somewhere else.

I'd still come to the SF Bay Area

It's back, and it's still number 1

True start-up people put the start-up's needs first 

And the job description second

Doesn't scale. These types of folks are gems.

Just make sure that's who you have in the First 50 if possible

© SaaStr 2023

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