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At a board meeting last week, one of the VPs of Marketing I’m lucky to work with presented a brilliantly simple way of explaining the evolution of a startup’s marketing tactics. I’ve drawn a diagram of the idea above, which borrows heavily from McKinsey’s 3 horizons.

Startups have many different marketing options at their disposal: SEO/SEM, print, radio, TV, mail, affiliate, content marketing…The list goes on and on. Faced with this litany of options, how does a startup maximize their marketing effectiveness?

Earlier this week, I wrote about the increase in cash compensation and decline in equity grants to VPs of Engineering and Product in startups. I received a lot of comments about the analysis, and in particular hypotheses to explain the data. I dug a bit deeper into the data set to find an explanation.

Founding employees keep more equity today than ever through the Series A and Series B. On average, founders retain 30-33% more equity than 4 years ago through those first two rounds of institutional investment. For the statisticians out there, this change is statistically significant with greater than 99% confidence on an average yearly sample size about 200+ data points per year per role.

What a difference three weeks make! Since I wrote “The Correction in SaaS Company Valuations”, SaaS company valuations have continued to fall. As a basket, SaaS companies have fallen 33% from their highs (median), wiping all the gains for the last year.

To make that point more explicit, below I’ve charted the total value of public SaaS companies over the last ten months. In that time period, the aggreggate enterprise value has fallen from greater than $150B to $117B today.

Since 2008, there has been a secular trend to increase cash compensation and decrease equity to startup management teams. Tho two tables below tell the story for VPs of Engineering (VPE) and VPs of Product (VPP) across the US broadly and in the SF Bay Area.

In the past 5 years, VPEs have benefitted from a 10 to 16% increase in their cash compensation, but have seen their equity grants fall by 17-19%. The same pattern holds true for VPPs: an 8-26% increas in cash and a 25-30% drop in equity grants.

The chart above compares the contribution of two hypothetical inside sales people with $400,000 quotas to an early-stage startup’s finances. In this case, contribution is the 18 month revenue of sold customers tallied cumulatively minus the salary costs of $100k annualized of the sales person. I’ve modeled a six month linear ramp for the sales person to reach 100% of quota.

The red line shows the case for a successful sales hire. Through the first three months, as the salesperson ramps, his contribution to the business is negative because his salary costs outweigh the lifetime value of his sales. Note, I haven’t included the recruiting costs here, just wages and commission. Starting in the fourth month, new customers closed by the salesperson begin to offset his costs and by month 5, the company is better-than-breakeven on the hiring decision on a customer lifetime value basis.

One of the key metrics that I don’t think gets enough notice when reviewing the health of a SaaS business is revenue-at-risk or RaR. For SaaS businesses with quarterly or annual contracts, each month some subset of the customer base’s contracts must be renewed. The RaR is the sum of the revenue from these customers in a given month or quarter. RaR is a useful measure because it captures the company’s opportunity to minimize lost customer revenue. Identifying customers at risk and proactively engaging them, cultivating a relationship and providing them account support can meaningfully improve a SaaS company’s churn rates.

Pricing is one of the hardest things for startups to get right because there is no universal and constant price optimum. As a SaaS startup’s product evolves and offers more features, the product’s price points should increase. As a sales team or marketing team engages different customer segments, price points may vary wildly. The contract for a F500 should have very different pricing than a startup, because of the stark contrast in the different companies’ willingness to pay and value associated with buying the product. When competitors influence the market place, price points may change. Conferences, seasonality, news events, business development relationships, sales promotions all may impact pricing.

Tien Tzuo, the founder and CEO of Zuora* and former CSO/CMO at Salesforce, knows SaaS businesses better than most. So when he pens an opinion about the subscription economy, a term which I believe he coined, I read it with great interest. Yesterday, Tien wrote “These Numbers Show That Box CEO Aaron Levie Is A Genius”, explaining Box’s business and growth in great detail.

In the post, Tien argues two important points. First, current accounting practices don’t properly reflect the health of recurring revenue businesses, like Box. A dollar from a recurring enterprise costumer with a multi-year lifetime value is worth much more than a dollar from a one-time transaction, like buying a digital apple in an iPhone game. Because SaaS companies can forecast the revenue from existing customers with great accuracy, these businesses can make deeper and longer term investments than transactional businesses.

When the meeting first appeared on my calendar, I incredulous at the idea of a management coach. “A business shrink who would sap another hour from my frenetic day,” I thought.

I was a few months into being a product manager at Google and stressed because I was in over my head. Most difficult of all, I lacked any type of formal authority. Google structured its product teams to have authority through influence, not direct management of engineering teams or marketing teams or sales teams. The brilliance of the engineers, marketers and salespeople I worked with amplified this challenge. We were all holding each other to very high standards.

Last week, we proved SaaS startups are raising more than they have in the past and newer SaaS companies seem to be generating more revenue per dollar invested. But do newer SaaS companies actually spend less on sales and engineering than their older counterparts?

In fact, the 2014 cohort of public SaaS companies spend more on sales & marketing and engineering than previous IPO cohorts. But this increased spend results in faster revenue growth and consequent higher revenue.