The Riskiest Venture-Backed Startups Are 3Hs

So recently I caught up with a great founder and a beloved product.  They rocketed to $20m ARR, and then … growth radically slowed.  To 15% a year.

From 100% growth at $10m ARR, to 15% at $20m ARR.

That’s rough. But rapidly slowing growth has happened to many the past 24 months. The tough part? The burn and the churn.

The burn was at a stunning $2m a month, and the churn had spiked. True NRR had probably fallen to 80% or so.

Look, this is tough. It’s sort of a death spiral:

• High churn, but no burn = struggle, but the engine self-perpetuates to an extent.
• High NRR, but high burn = tough, but your 140%+ NRR ultimately often pulls you through.

Those two are tough but founders find a way. What’s really hard to solve is The 3H’s: High Growth for a while — but High Churn. And High Burn.

VCs often enable these models. The bigger funds are wired to fund hyper growth and high burn together. Blitz scaling. But you have to make 1000% sure this playbook actually works for you. 

The big D2C failures are prime examples. Selling meal boxes to customers that never come back and purchase again can look great at first, but these models can collapse with 5%+ churn a month. But the initial glow of hypergrowth blinds folks to the perils of high churn + high burn.

With everything in AI moving so rapidly, what’s the best way to price Artificial Intelligence products or SaaS tools with custom AI features and integrations? Should it be subscriptions, usage, solutions, or something entirely different? While companies are scrambling to roll out these new tools, they also want reliability and predictability in the value they’re getting from your products, which can make pricing extremely difficult. 

So we asked the expert, Sandhya Hegde, General Partner at Unusual Ventures to share her best practices and trends for pricing and packaging AI products. Sandhya has been in the startup ecosystem for about 15 years, with the last two years heavily focused on investing in AI-native startups, primarily on the application and Enterprise software side. Over the past year, people have started to recognize how challenging pricing and packaging are for AI products, as well as the competitive pressure. Why is pricing so tricky? 

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

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So years ago on SaaStr, I wrote a post on how everyone in your company should do customer support once a month. I learned this from Intuit, brought it back to my startup, and forced everyone to do it. Even engineering, which at first strongly resisted.

I still believe this is a best practice. It forces folks not just to listen to customers, often for the first time, but to actually go solve their problems!

Do it. But it can add some stress when team members have to answer chats and calls but can’t solve the problems. This is easier to implement if they sit next to (virtually or IRL) a customer support lead and really handle the questions together. Not hard to implement, but it does take a decent amount of organization as well as help from support.

“Doubling Down” is a new series where we hear from top B2B SaaS investors on their most recent activities and takes on the current market. We had a great one last time with Harpinder Singh, Partner at Innovation Endeavors. Check that out here.

This week we’re focusing on Peter Specht, Partner at Creandum!

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

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