I'm a partner at Redpoint
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Initial Coin Offerings, a fundraising mechanism for companies using cryptocurrencies as a mechanism to buy their service, seem to be upending the world of venture capital. Filecoin raised $250M through an ICO. Tezos raised $232M. Bancor raised $153M. These are massive amounts of money. Recently, I've been wondering how prevalent ICOs are and whether they could potentially be a substitute for venture capital.
One of the major trends facing SaaS companies today is the rising cost of customer acquisition. Data on this trend has been difficult to find. Fortunately, Patrick at ProfitWell sent me his survey results across about 800 companies. The chart above shows the increasing cost of customer acquisition on a per company basis. Those surveyed have observed a ~65% increase in cost of customer acquisition over the last five years.
Starting in January, public software companies will report their financials using ASC 606. Normally, accounting changes are not that interesting, but ASC 606 will change several of the key attributes and benchmarks SaaS startups use. The two most important changes are changes to revenue and profitability.
Last week, I participated in two discussions about the changes in the SaaS world. I believe they are fundamental. The most important force shaping the industry today is competition. The level of competition in many core SaaS segments is intense.
A startup's competitive advantage is execution speed. That quickness stems from a CEO's ability to decide and this ability separates the great from the good. According to a recently published Harvard Business Review article, one of the four key behaviors distinguishing exceptional CEOs is deciding with speed and conviction.
Recently, a VP of sales told me about the way he views the dynamic between inside and outside sales when managing a sales team. Inside sales is the drumbeat, a highly predictable sales organization whose consistency enables outside sales to swing for the fences. I never heard it expressed quite this way, but I do think there's some truth to it. To prove it to myself, I ran a Monte Carlo simulation for hypothetical startup.
Shopify is an exceptional business. There are not many software companies who can nearly quadruple their enterprise value in two years. But Shopify has grown from $2.7B in enterprise value to more than $10B. What are the metrics behind this behemoth?
How do you help someone when that person knows substantially more about the question than you do? This is one of the most fundamental and frequent questions in management. I came across it first as a product manager. Then as a manager of teams. And last as a board member. In each of these situations, have interacted with people who knew substantially more about their area of expertise.
How much should a SaaS startup invest in sales and marketing at different stages of the business? This is a very nuanced question, but benchmarks do provide some guidance for what is reasonable. Sales and marketing investment depends on many different factors including establishing product market fit, the business's sales model (inside, field, freemium), and not least, cash balance and fundraising capacity.
One of the hardest things for me is to admit is when I'm wrong. It's hard first to admit it to myself. But harder yet is to admit the error to others. It could be my wife or my colleagues. Most challenging of all is owning the error in a public forum. But admitting mistakes is a key defining attribute of a leader. Owning the mistake accomplishes one critical thing. It builds trust, because it reinforces a fundamental characteristic of our humanity. We are all fallible.