Of the 43 SaaS companies to have gone public in the time period between 2006 and 2014, 60% are trading above their IPO pop price – the price at the end of their first day of trading. The median company has appreciated 69% since its IPO. The chart above shows the trends for each of the companies in this data set.
In 2000, the majority of tech acquisitions were primarily stock. One company would buy another using its own shares, instead of paying for the target business in cash. But since then, there's been a secular trend to cash deals. In 2014, 90% of the tech M&A transactions consummated by companies, and excluding private equity firms, in the US with disclosed deal values were cash deals.
Creating a sense of urgency is one of the most powerful sales tools available to SaaS companies. There are many different ways of accomplishing this, but one of the most common ways is to offer discounts that expire. Discounts are powerful incentives to increase sales. But, they have to be crafted correctly, or they can have dramatic impact on a startup's cash position. This is why sales incentives should be designed hand-in-hand with the company's finance team.
Traditional software was initially sold by perpetual license. Then in the mid-00s with the advent of SaaS, the market shifted to per seat per year pricing. And simultaneously, freemium marketing strategies blossomed. Freemium companies provide software for free temporarily to entice users to try and use the product. Eventually, these users cross a threshold and convert to a paid subscriber. This threshold can be based on number of people using the product (Expensify), number of documents signed in a month (HelloSign), or additional product features needed by users (Yammer). Today, we're seeing a new segment of the SaaS ecosystem move to free - the SaaS Enabled Marketplace (SEM).
Orbiting the Giant Hairball is one of the most unusual business books I've read. It's irreverent, full of drawings, and completely chaotic in the most wonderful way. Gordon MacKenzie, the author of the book, worked at Hallmark cards for 30 years to the day. He started initially in the creative department imagining greeting cards and ultimately found himself with the title Creative Paradox. In his book, he described the way he injected creativity into his working life. I thought it was a great book with three salient themes.
In the late 1990s, two of the dominant talent management platforms were founded. Taleo and SuccessFactors grew very quickly after they entered the market, bringing novel delivery to the human capital market. Both companies eventually offered talent acquisition, performance management, and learning tools for human resources teams. But they started in different places. Taleo initially focused on recruiting tools and SuccessFactors on performance management.
At Gainsight's Pulse Conference on Customer Success, Mike McKee of Rapid7 spoke about the structure of his customer success team. He projected a slide, which I've copied in the image above, that depicts the way Rapid7 sells a contract, deploys its software, engenders adoption and expands accounts. It's the best visualization I've seen to describe the sales and customer success process and the inter-team collaboration required to be successful.
Ariba went public in 1999 three years after having been founded. In its first year of selling, the company generated $800,000 in revenue. Then it ramped. $8 million, then $45 million, then $274M. In a three-year period, the company had grown 33x and achieved an astounding CAGR of 224% over the same period.
At the Gainsight Pulse conference yesterday, I moderated a panel with Boaz Maor, VP of customer success at Mashery and Mike McKee, SVP of customer success and services at Rapid7. During the panel, both men described their path to building substantial customer success organizations at their respective companies. Boaz's team numbers 60 people, and Mike's exceeds 160. Over the course of the panel, we discussed the ways to recruit, structure, and manage vibrant customer success teams.
The rate at which startups are raising follow-on rounds is decreasing, and has decreased steadily from 2003 through 2013. Between 2003 and 2006, post-Series A startups raised series Bs about 57% of the time. However from 2011-2014, that figure fell to 28%. The same trend is true in series C rounds, where success rates fell from 43% to 35%.