Hey SaaStr Community,

So we try to be positive on SaaStr — that’s what helps the most.  Showing folks the way, often through tougher times.

But there’s a trend I want to highlight now that we’ll see all across 2024.  And I’m highlighting so if it’s you — you can get a bit of a kick in the arse and go do something about it.

It’s the “NRR Zombie”.

What’s that?  It’s a SaaS startup that basically fell out of product-market fit after the 2021 boom … but has enough revenue and high enough NRR to keep going.

In some ways, NRR Zombies are outputs of the actions of 2023, especially for venture-backed startups.  Everyone had to cut, cut, cut — and was told to cut, cut, cut.  That they had to get to cash-flow positive, because no more money was coming.

And while many couldn’t pull it off, and will go under, a lot actually got there.  They did layoffs and froze headcount.  They cut marketing spend to $0.  They raised prices.  And most importantly, they kept most of their existing customers, even as they struggled to attract any new ones.

So now they are, in essence, NRR Zombies.  They’re at $2m-$20m ARR or so, sometimes more, aren’t losing money, and have 90%-100%+ NRR and relatively stable GRR and logo retention.  So that revenue and cash will keep coming in for years.

But they just can’t get any new customers anymore.

In this week’s latest episode of CRO Confidential, Sam Blond, Partner at Founders Fund and former CRO at Brex, sits down with the CRO of Splunk, Christian Smith.

Splunk is a 20-year-old Enterprise software giant that has accomplished many things — a 2012 IPO, a $28B+ Cisco acquisition in 2023, and $3.7 billion of ARR last year, with a market cap of $25.7 Billion.  

Splunk’s core product is a platform for collecting and analyzing high volumes of machine-generated data. Over the years, Splunk has expanded its offerings through acquisitions and product development. As Christian shares on the pod,  the company’s current customer list includes many notable companies, with 92 of them being on the Fortune 100. A feat!

As Christian’s been the CRO of Splunk for over seven years now, he’s a wealth of knowledge on what it really takes to be successful in Enterprise SaaS Sales.

Together with Sam, in today’s episode, they discuss everything Enterprise SaaS sales including:

• Pipeline health
• Enterprise pipeline generation
• How to create demand in the Enterprise when new business slows
• The pros and cons of a product-led pipeline
• And of course, Customer Success with Enterprise-level customers

This edition of the SaaStr weekly is sponsored in part by Paragon

So there’s a new member of the $10 Billion ARR Club.

ServiceNow is the enterprise workflow leader that most folks have sort of heard of, but don’t fully understand or know too much about.

It’s because you don’t work in a big enterprise. ServiceNow simply dominates there.

It’s a $10 Billion ARR rocketship, still growing a stunning 27% (!) at that scale, with 1,900 $1m+ customers.  And it’s trading now at an all-time high of $160 Billion, or 16x (!) ARR.  Far, far ahead of the average of 6x today.

I remember my first embarrassing sales meeting.

I knew an SVP at a Top 20 Tech Company, and really as a favor, he told me he’d do a $100k+ deal with Adobe Sign / EchoSign in the early days.  I just needed to pitch his entire team.

My co-founder who was our product guru was supposed to join me.  But he simply ghosted the meeting, and I was alone in a parking lot in San Jose, waiting for my product wingman to show.

I walked in alone.

I first did my standard demo of our web product, and I was good at it.  But then — they asked me to demo two more things. First, our new Salesforce integration. And second, our LDAP integration.

I tried to do the Salesforce demo, but I actually had never really used Salesforce before.  We had 1 sales rep, so I didn’t see the point of learning it.  So — I failed the demo. It didn’t work.

And then they asked for “the LDAP Demo”. Well, I had to admit I had no idea what LDAP was.

And that $100k deal, that great logo we really could used in Year 1 … was lost. Poof. Gone.

In SaaS, there are a lot of great “rules” that do make sense overall but can be confusing or borderline misleading at times.  E.g., Sales +Marketing Expenses < First Year ACV = Success?  I.e., keeping the Magic Number at or above 1.0. Great rule — if you have the capital to fund it. But maybe not while you are scaling, you can often afford to invest more if you have funding.  And you may not be able to afford this if you are bootstrapped or running lean.

E.e.g., if Churn > 2% = Bad, Just Terrible. Well — Maybe.  Especially if you are mid-market or enterprise. But with very small businesses in the early days, it may be OK.  And even in the enterprise, losing one big customer can swamp you here in the early days. What most matters is that churn is going down, rather than the core absolute value, IMHO.

Recently at Pavilion’s CEO Summit, SaaStr CEO and Founder Jason Lemkin, took the stage to do something .. a little bit different. Typically on SaaStr.com, we try to focus our content on mistakes to avoid, lessons learned and how to scale faster, but for the CEO Summit, Jason addressed the audience with what’s most top of mind for him at the start of 2024.

• SaaStr 720: CRO Confidential: What It Really Takes to Be Successful in Enterprise SaaS Sales with Christian Smith, CRO of Splunk. Hosted by Sam Blond, Partner at Founders Fund

• SaaStr 719: What's New at WordPress with Matt Mullenweg, CEO of Automattic and Co-Founder of WordPress. Hosted by Jason Lemkin, Founder and CEO at SaaStr

• SaaStr 718: Predictions for Venture, IPOs and the State of SaaS in 2024 with SaaStr CEO and Founder Jason Lemkin and Harry Stebbings, Founder and Host of the 20 Minute VC  

Listen on Apple Podcast, Spotify or Google Podcasts

In many ways, after just a few million in ARR,

your job as CEO is to maintain momentum

With:

- better management

- fuel (capital)

- innovation (features)

- more awareness (marketing)

And so you should obsess about any early signs of losing it

You’ll see it before others do

Perhaps the biggest category of all getting crushed now is “pseudo SaaS” Services, courses, subscriptions that are packaged like

SaaS but aren’t really for software

This stuff got valued like software, but in the end, doesn’t have the retention or other characteristics

If you'd just invested in ServiceNow's IPO

You'd be up 3,094.02%!!

© SaaStr 2024

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