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I met an entrepreneur last week with an amazing command of technology history. He spoke about the way the Xerox Alto has influenced graphical design over the past forty years. I learned a lot. For this first computer’s monitor has a portrait orientation, not a landscape orientation? His knowledge of history provides him a huge competitive advantage because he understands why things have evolved a certain way and the assumptions that underpinned previous decisions.

In February, public SaaS companies had fallen 57% from their highs. The enterprise value to forward revenue more than halved from 7.7x to 3.3x. This ostensibly random valuation correction has triggered a flurry of consolidation in software, with nearly $70B+ worth of exits year to date in 2016. Over the last six months, however, forward multiples have reverted to the mean.

A senior SaaS executive once told me, “Reports sell software.” In a top down sale, that’s absolutely true. The CEO wants better predictability of bookings so she’ll buy a CRM tool to gather the data. Classically, software has been built for that mantra.

First, a company buys a database. The sales people, marketers or customer care staff continue working as normal. But after the purchase, these teams are burdened with an additional step of updating the database when they’ve finished their work, so a report can be generated.

Sales teams are the tip of the spear for SaaS companies. They close accounts and book the revenue. Many sales teams often find themselves confronting the same issues. Mike Anello and Kane Hochster, two HBS students, researched this topic by surveying more than 30 VPs of Sales. The survey included both rising and seasoned leaders across a range of revenue ranges but with a concentration in earlier stage startups.

They operated from a clandestine apartment in Harlem, a block from Columbia University at 401 West 118th Street. A cell comprising 18 of the most respected American mathematicians and statisticians spirited datasets up the stairs, analyzed them, and stole to Washington DC on military aircraft to present the results of their rumination to the admirals of the Navy and the Marines, the generals of the Army, Marines, and Air Force during the Second World War. Allen Wallis, Director of SRG said of his team, “This was surely the most extraordinary group of statisticians ever organized.”

Average Series A valuations have hovered around $15M for the last 9 quarters. Series B rounds have settled into $50M, while Series C rounds have rebounded to $100M. Later stage rounds, however, have fallen by 50% from their high of $400M to just under $200M.

However, in the early stages the frequency of down rounds (e.g., a Series D with a smaller valuation than a Series C) aren’t at historic or even six year highs.

When you’re selling a SaaS product to a potential customer, you have to convince them switching is worth the effort. And once you’ve sold the product, you have to do the opposite: convince the customer that switching to anything else isn’t worth it.

In chemistry, there’s a notion of an activation energy. A Swedish scientist Svante Arrhenius coined the term to describe the minimum amount of energy required to start a chemical reaction. The drawing above depicts this idea.

Channel distribution represents one of the biggest and most important changes in customers acquisition for SMB SaaS startups in quite a while. Historically, channel distribution has been reserved for the most expensive software and hardware. IBM, Intel, Cisco and their kin generate more than 80% of their revenues through a universe of resellers and distributors.

As many of these channel partners move to newer distribution models, the brokerage channel model in particular, they represent an efficient and leveraged customer acquisition channel.

There are three pricing strategies for startups. Maximization dominates SaaS products in the mid-market and enterprise markets; penetration is synonymous with freemium in the SMB market. Once you’ve decided on the right strategy for your company, what is the best way to price? By seat? By minute? With or without a platform fee?

Modern behavioral economics study three different pricing structures. Let’s contrast them for a hypothetical web analytics vendor.

1. Linear Pricing (LP) - Each analytics event costs $0.10.
2. 2 Part Tariff (2PT) - The analytics software has a base platform fee of $10,000 and each analytics event processed by the system costs $0.10 more.
3. 3 Part Tariff (3PT) - Again, the software has a base platform fee but the fee is $25,000 because it includes the first 150k events are free. Each marginal event costs $0.15.

Which is the best for software companies? For the first ten years of SaaS, the linear pricing model dominated. Recently, 2PTs have emerged, but are still uncommon. However, several academics argue the 3PT may be the optimal strategy especially when the number of vendors in a category is small.

Through the end of July in 2016, $70B worth of SaaS companies sold. Their size follows a power law with LinkedIn at $26B and Netsuite at $9.3B. The more than $600B in cash on the balance sheets of large public tech companies combined with a recent pricing correction in SaaS companies presaged a flurry of acquisition activity. But it hasn’t unfolded as expected in three different ways.