Allan Wille -
SAN FRANCISCO – Another big day here in at SaaStr Annual. We’re continuing to benefit from great presentations, and getting ample opportunities to chat with fellow CEOs and SaaS company founders.
At the end of yesterday’s sessions, I found that four things stuck in my mind: a warning, an opportunity, a trend and a piece of advice.
First, the warning.
We’ve all watched the stock markets slump in the last few weeks. That slump is having an effect in the venture capital markets: They are pulling back.
The reality check came from Mark Suster, manager partner at Upfront Ventures, a venture capital firm based in Los Angeles, and Danielle Morrill, CEO at Mattermark, here in the San Francisco area.
They noted that 2014 and 2015 were huge years for the venture capital industry. Large amounts of money were being raised by venture capitalists and record levels were being placed into growing companies. Last year saw the fastest pace of capital deployment in the past 10 years!
That has all changed. Public markets are off, and private markets are retracting. Venture capitalists are now strongly focused on the weaker portfolio companies, and are looking at how fast they burn through their money as well as stability across all their investments.
We’re in for a rough 18 months as things correct.
Companies raising money will take a back seat. And those that raised money at inflated valuations will have to go back to the market with their tail between their legs.
The lesson? Watch your cash and think about efficiency. The firms that make it through -- without being acquired -- will emerge stronger.
Next, the opportunity.
The small and medium-sized business (SMB) market is huge and has great potential, but historically it has been difficult to address, sell into and support.
That is not the case anymore.
The accessibility of the cloud, the affordability of SaaS business models, and a growing trend in the “product first” way of building a company has made the small and medium-sized business market a massive opportunity. Think Zendesk, Intercom, Xero - all companies that have invested very heavily in product to efficiently grow in this market.
The point is that the sales and marketing costs to acquire an SMB customer are being pounded down not by reducing sales or marketing spend, but by focusing on user experience, virality and just a really good product.
Now, the trend.
Some companies are now building products specifically with developers in mind. Companies such as DigitalOcean, New Relic, Atlassian, Slack and Salesforce have all focused on delighting the developer community. Slack has gone so far as to invest 20% of its efforts in what they call ‘platform’ - the tools, documentation, communities and programs meant to attract and really wow developers.
There seem to be two main paths for this trend.
One is to engage developers to build on your platform. The result is an ecosystem that can add massive value and protection to your solution.
The other path is selling to developers directly as the target market. Perhaps it’s really just the world waking up to the fact that developers were in control all along!
Finally, a word of advice.
It comes from David Skok of Matrix Partners through a presentation entitled “Driving SaaS Success Using Key Metrics.” (The subject matter is, of course, close to our heart.)
He suggested thinking of a SaaS business as a piece of machinery. Small changes to certain dials can make an enormous difference.
His message was that if there are just two metrics to focus on, let one of them be LTV:CAC ratio (the ratio of the lifetime value of a customer divided by the sales and marketing cost to acquire a customer - target a ratio of 3x).
The second one should be ‘Months to recover CAC.’ If you can drive this below nine months, it will dramatically shorten your path to profitability.
That’s it for today. And of course the massive after-party, with none other than Mix Master Mike at the legendary Club 1015. (That brings back memories!)
More tomorrow on the final day of SaaStr Annual 2016.
Allan Wille is a co-founder of Klipfolio, and its president and CEO. He’s also a designer, a cyclist, a father and a resolute optimist.