Much has been written about the consumerization of IT, the movement fueling many SaaS startup's growth by targeting individuals in a target customer called [B2C2B](http://tomtunguz.com/b2c2b/), rather than selling top down. But until yesterday, I hadn't found anyone who had quantified the size of the movement.
The SaaS ecosystem has been evolving incredibly quickly. Most of the time, the changes in the ecosystem are embodied in one particular company which grows exceptionally quickly. Focusing on these fast-growers, the macro shifts can be hard to discern. Last week, Okta released a report Business at Work sweeps across SaaS to reveal these recent evolutions. These are the points that I found most interesting.
Over dinner, a veteran product manager argued most SaaS products' onboarding practices miss a crucial step: create value for the user in the first session. After that conversation, I signed up for many brand-name SaaS products pretending it was for the first time, and I couldn't help but agree with him.
The public markets are down more than 10% from their highs in the last few months. Public SaaS companies have been particularly hard hit. The chart above shows the enterprise value of publicly traded SaaS companies. Many of them are down substantially more than 10%. Let's dig in a bit more.
I've been to many YC Demo Days and I always look forward to them. This year was no exception. There are so many wonderful ideas and companies founded by terrific entrepreneurs. In addition to the pitches themselves, the types of companies presenting forbear trends in the startup world more broadly.
The most potent weapon in sales is understanding a buyer's perception of time. As Mark Roberge wrote, "At HubSpot, this lacking sense of urgency is the number one objection we face in the sales funnel." To succeed, SaaS startups' sales teams must consistently create urgency in the sales process.
While culture may seem an ambiguous and fuzzy concept, strong cultures are the best way for leaders to manage their companies throughout their evolution. One founder/CEO described his company's rapid growth to several hundred employees in just a few years this way. First, I was one of a few founders. As we grew, I became a manager of people. Then a manager of managers. And now I'm a manager of managers of managers. At this scale, CEOs can't be in every room opining on each choice, but they can influence how each decision in those rooms is made.
No matter the stage of the business, startups need to manage the size of their Employee Stock Option Pool or ESOP. The ESOP contains the shares set aside by the company for hiring and retaining employees. Like a financial budget, ESOP budgets help a startup plan how to finance its growth.
In a recent First Round Review article, former Google President of Enterprise Apps Dave Girouard voiced the importance of speed in making decisions. "Deciding on when a decision will be made from the start is a profound, powerful change that will speed everything up." I believe this statement is broadly true, and no where else is it more tangible for me than in managing daily email. After all, what is responding to email other than a thousand decisions?
When we say a startup has raised a big round, we often mean the round is big in two dimensions - total amount invested and valuation. And when we say a big valuation, more precisely we imply the round was priced at a high revenue multiple. A SaaS company that will generate $400M in revenue next year that raises $200M at $1B valuation has raised a big round, but at low valuation-to-revenue multiple of 2.5x. In contrast, most high growth SaaS startups are raising at very high multiples, somewhere between 10-20x forward revenues. What are the implications of raising at a large multiple?
Startups today are growing faster than they have in the past. US VC backed startups in 1998 grew revenue 63% per year on average. In 2014, the median startup grew at 85% CAGR before going public. These increasing growth rates are fueled by three key trends.
We all build products based on assumptions - assumptions about our users, who they are, how they think, what they expect. When the underlying assumptions underpinning product design no longer holds, new opportunities are created.
The prevailing wisdom for hiring the first VP of Sales is roughly $1M in ARR, or whenever the company has figured out some repeatable sales process. The rationale behind this advice is, at this point, the company needs someone to build recruit, incentivize, coach and manage the team that will grow to acquire more and more business. While that all makes sense, I was curious to see if startups do this in practice, and whether the timing of the VPS differs by ACV.
Founded in 1998, Netsuite is worth about $7.7B, making it the sixth largest SaaS compay behind Salesforce, LinkedIn, Workday, ServiceNow and Splunk. Netsuite began developing ERP (enterprise resource planning) tools to help companies manage their finances, expenses and supply chain. Over time, Netsuite has added a few more product lines including ECommerce platform, CRM, business intelligence and a professional services management product. In the last ten years, Netsuite has grown revenue from $18M to $556M. As the company disclosed in their last annual report, Larry Ellison, the CEO of Oracle, owns 47.4% of Netsuite common stock, implying the company is strategically important to Oracle.
In response last week's post on The Fastest Growing Areas of Startup Investment in 2015, in which Bitcoin topped the list, I received many questions about the underlying dynamics of this startup segment. Which regions? Which stages? How much is going into Bitcoin companies. Using Crunchbase data, I analyzed BTC investment patterns over the past 4 years.
Founders often ask, when is the right time to expand geographically, add a second product or pursue another customer segment? Most of the time, the answer is not yet, not until the company is quite large, perhaps in the hundreds of employees and the main challenges and questions for the business have been answered well.
If there's one notion that will define the decade early 2010s in startupland, it's the Megaround, the investments of greater than $40M in private companies. Historically, startups needed to trade on public exchanges to access sums of money from $40M to several billion. But today, the private markets are providing this capital. These billions of dollars, which amount to about half of all venture investment, skew substantially towards consumer investments.
As I was researching the theory behind organizational goal-setting, I came across a letter from Hunter Thompson, at the time 20 years old, writing to a friend about goals. Yesterday's post discussed some frameworks for organizations to craft goals to maximize employee happiness and effectiveness. But Thompson's advice is for our goals as individuals.
Of late, I've been having lots of conversations with founders about setting goals. It's a really important topic for many founders, because it's the way that management teams align incentives and focus an organization on a few important areas. It’s their focus that enables startups to move quickly, one of their key competitive advantages in the market. But, what is the optimal way of setting goals?
I learned to drive a car at age 19 on a warm Santiago de Chile night, in an unusual way. A friend named Jose Pedro resolved to teach me after dinner at his apartment, suprised to learn I didn't know how. It was past two am, and without anyone on the streets, it would be safe, he assured me. As we sat in the car, he showed me how to manage the three pedals and the gear shift, and explained the how the clutch worked. Then the lesson started.
In Q2 2015, VC investment totaled $16.7B, about a 66% of the $28B deployed in Q2 2000. And the trends shows no sign of stopping. A big contributor to this growth are nontraditional investors including mutual funds and hedge funds, which now account for approximately 40% of dollars invested. and while the market is similar to the dotcom era in some regards, it is substantially different in others..
When asked why he took Zendesk public this week, CEO Mikkel Svane replied, "At some point you have to move out of your parent's basement." It's a witty quip with some truth to it. Evolving into a public company is a step for about 25-30 venture backed IT companies per year, and it can be a worthwhile, if strenuous, journey.
Earlier this week, we examined the trends in the major categories of startup investment including eCommerce, Software, Social Networking and Education. But which lesser known startup sectors are starting to raise venture dollars? Where are founders finding unique opportunities to innovate?
"People don't buy what you do, they buy why you do it." This line from Simon Sinek's TED talk captures the power of a values based marketing campaign. Simon contrasts feature-based marketing - start with *what* the company is selling continue to *how* they do it and finishes with *why* - to value based campaigns which reverse the story-telling order. Values campaigns start with the why.
In the last six months, VCs have invested more than $57B according to Mattermark data, which puts 2015 on pace to exceed 2000 as the year the most venture capital will be deployed, ever. Which sectors are benefitting from all these venture dollars?