In 2.5 years, Adobe has transformed its business from a software license business into a SaaS business. It's been a remarkable transition, and one not talked about very much in the SaaS world. Transitions from licensed software to SaaS are rare. The travel and expense management behemoth, Concur, recently acquired by SAP for $8.3B, is another great example that made the transition first from CD-ROM packaged software, then to enterprise license software and then to SaaS. Above, the line chart shows the astounding growth in the number of Adobe Creative Suite subscribers from the launch of CreativeSuite 6 in mid-2012 through March 2014 growing at 31% per quarter.
Leads are the lifeblood of every SaaS company. As a SaaS startup grows, the limiting factor of the business quickly becomes demand generation. Can the marketing team generate enough leads to for the inside sales team to attain their monthly quota? The Marketing team's mandate is to generate these leads in a cost-effective way and develop a portfolio of lead-generation mechanisms. Ideally, these generate inbound leads, who often convert at 2-3x the rate of outbound leads. Below are the five marketing channels I've observed at SaaS companies.
Over the last 15 months, the typical high growth public SaaS company's multiple has halved. The chart above plots the average enterprise value to forward revenue multiple for established SaaS companies and high growth SaaS companies. High growth companies peaked in February last year at about 22x forward revenues and have fallen to 11x on March 1, 2015. Established companies dropped similarly from 6.6x to 4.5x.
Every SaaS company should be focused on mitigating churn because greater retention enables a business to grow far more rapidly, to reduce the cost of customer acquisition, and to slash the amount of capital required for the business to grow. But there's one additional reason to focus on churn: predictability. The more dollar churn a business creates, the less predictable its performance - and vice versa.
In a recent survey, 40% of VCs pointed to SaaS as the startup sector most likely to be impacted by a market correction. There's no question that the early stage SaaS founders are benefiting from substantial multiple expansion and pre-money valuation increases. But I was curious about how widespread aggressive investments are in software companies. As the data below shows, the seed and Series A markets have been stable, but Series B rounds have seen a dramatic acceleration recently.
When you walk into Looker's offices, the first thing you'll see are the surfboards standing in a corner, still sandy from a morning's outing. Looking around, you'll notice the sunny outdoor patio where a chef once made enough paella in one enormous *paellera* for Looker's 100 employees, and you might sit at the long tables where they shared the feast. As you entered the building, you would have passed a motorcycle glinting in the sun, a gift from the company to an early engineer for his outstanding contributions to the business. All around the office, you can feel the culture Frank, Lloyd and the rest of the Looker team have imbued into company from the very earliest days.
There's a magical property to the classic sales funnel SaaS startups use to evaluate the effectiveness of their go-to-market organizations: an increase in effectiveness at any stage of a sales funnel cascades through to the end funnel. But improvements to the early parts of the funnel are more important than those later in the funnel, because they meaningfully improve key SaaS metrics like cost-of-customer acquisition and pay-back period.
Over the past four years, the amount of seed investment has increased by more than 200%. And the typical seed investment size has risen by 25% in just the last 12 months. In 2014, for the first time in four years, median Series A round size have increased.
After writing about the Seed Market in 2015, I wondered whether I could find some data to support Sam Altman's observation that acquihires have fallen in frequency over the past year by 66-75%. The chart above shows an estimate of the acquihires in US technology companies over the past four years.
A few weeks ago, I joined Mike Volpe, CMO of Hubspot, on the Growth Show where we had a great time talking about a few SaaS topics. A few listeners to the podcast picked a line from that podcast that I think is a really important point for content marketing. I said, "Content is one of the few forms of marketing that has a compounding return."