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What a difference a month makes. I wrote a post on January 10, 2016 called The Downward Pressure of Public Markets on Startup Valuations that depicted the slow decline of SaaS multiples in the public markets. Since then, multiples have compressed markedly.

The chart above shows the forward revenue to enterprise value multiple of all public SaaS companies. Remember the heyday in March 2014? We’re 57% below that high at 3.3x forward revenues. A month ago, the market traded these businesses at 4.2x, so a 21% fall in four weeks, punctuated by a 40%-50% decline in LinkedIn and Tableau* last Friday.

Leverage. It’s the key to negotiating. Classic negotiating books like Getting to Yes define the BATNA, the Best Alternative to Negotiated Agreement. If you were to walk away from a conversation, what’s the next best choice? The BATNA singlehandedly creates leverage in negotiating.

Over the last few years, startup founders have exerted tremendous leverage in the fundraising market by taking advantage of the supply/demand imbalance. Too much capital chasing a sliver of exceptional startups. When demand exceeds supply, valuations and round sizes balloon. A fast-growing startup’s BATNA had been the other investor waiting in the lobby, term sheet in hand.

When buying machine learning enabled software, it’s easier to sell like Ironman than Robocop; a product that complements and augments the user’s skills rather than a true replacement. As machine learning continues to become a key differentiator among SaaS products, a secular and positive trend, startups are learning how to sell the promise of the software better and better. These are some of the objections customers raise during those sales pitches.

I know 12 things about you.

1. You have a great need for other people to like and admire you.
2. You have a tendency to be critical of yourself.
3. You have a great deal of unused capacity which you have not turned to your advantage.
4. While you have some personality weaknesses, you are generally able to compensate for them.
5. Disciplined and self-controlled outside, you tend to be worrisome and insecure inside.
6. At times you have serious doubts as to whether you have made the right decision or done the right thing.
7. You prefer a certain amount of change and variety and become dissatisfied when hemmed in by restrictions and limitations.
8. You pride yourself as an independent thinker and do not accept others’ statements without satisfactory proof.
9. You have found it unwise to be too frank in revealing yourself to others.
10. At times you are extroverted, affable, sociable, while at other times you are introverted, wary, reserved.
11. Some of your aspirations tend to be pretty unrealistic.
12. Security is one of your major goals in life.

Was I right?

In 1983, Lorne Whitehead, a physicist from the University of British Columbia proved he could knock down the Empire State Building with 29 dominos. A domino can knock over an other domino one-and-a-half times its size. Whitehead’s theory concretely demonstrates the power of a chain reaction.

Like a series of dominos, a startup’s success is a chain reaction. One small win leads to two other slightly bigger successes, which grow to four triumphs, then eight hits and so on until the company is a blockbuster. The first win might be witnessing a product capture the imagination of a random coffeedrinker at a local cafe. The second reaction might be closing the first paying customer. The third, hiring a top-notch executive.

My father keeps a copy of Michael Porter’s Competitive Strategy on his bookshelf. An imposing dark gray tome, Competitive Strategy is a business classic. I remember reading it sometime in high school, and not understanding very much of it. It was only six years later in a college macroeconomics class, my professor helped me understand the value of the Five Forces. For startups entering a period of increased capital cost, the wisdom of Porter’s Five Forces is more important to consider now than they have been in the past few years.

Quick. Casual. Human. Chat differs from other forms of communication. Because of these three attributes, chat seems to be reemerging as a potentially disruptive user interface for both consumers and business users.

The typical teenages emits more than 3000 text messages per month, not to mention messages on other networks. Most retailers provide customer support via chat. Hundreds of millions of people have tweeted. The combination of these three forces expose nearly everyone on the Internet to brief, useful messages every hour.

65% of entrepreneurs believe that fundraising in 2016 will be more difficult than in 2015, according to First Round’s survey. The volatility in the stock market, the steady erosion of public multiples, and the broad decline of seed, venture and growth investment in Q4 2015 seem to portend a repricing of the startup market. In light of those changing circumstances, entrepreneurs should prepare a few different analyses for 2016.

Suppose you’ve been selected to participate in a game show. The game show host asks you to pick one of three doors. Behind one, the grand prize awaits. Behind the other two are goats. You choose Door 1. Then the hosts opens Door 3, revealing a goat. The host prompts you again, “Would you like to select Door 2?” Should you choose it?

This statistics question rose to fame in 1990 when Marilyn Vos Savant asked it in Parade Magazine. In the weeks that followed, Vos Savant received more than 10,000 letters pronouncing her wrong. One thousand of these letters had been penned by PhDs, and many bore the insignia of prestigious universities.

2015 is the end of an era, the era of startup growth at any cost. In 2016, the question that will immediately follow, “What is your annual growth rate?” will be “What are your unit economics?” This change in investor mentality is catalyzed by the increasing cost of startup capital.

Starting in 2014, and perhaps even a bit before, startups have been able to raise capital at better terms than at any time since 2000. More money raised for less dilution. The greater competition among investors increases valuations relative to revenue pricing valuations further into the future.